Income Tax Severed Letters - 2011-08-12

Principal Issues: Whether a student can deduct eligible moving expenses against RESP income.

Position: No.

Reasons: Section 62 does not provide for eligible moving expenses to be deducted against this source of income.

Principal Issues: Whether subsection 125(5.1) is applicable to a farm mutual insurance corporation.

Position: While it is a question of fact which depends on the circumstances, where an insurer described in paragraph 149(1)(t) is only eligible for a partial exemption from Part I tax under subsection 149(4.1), the insurer is not considered exempt on all of its taxable income and is therefore subject to Part 1.3 in that particular year (or would be subject to Part 1.3 tax if the Part 1.3 tax had not been eliminated).

Reasons: Both the current and proposed subsection 125(5.1) may apply if the corporation has taxable capital employed in Canada in excess of $10,000,000.

Principal Issues: In light of certain assumptions you have asked us the following questions: 1.Does the CRA agree that Article XV of the Treaty does not apply to the Service Fee? 2.Will Article XV apply to the remuneration earned by the US Employee for the services performed in Canada and if so, will the US Employee be exempt from Canadian tax pursuant to subparagraph 2(b) of Article XV of the Treaty? 3. If the US Employee is not subject to Canadian income tax on the remuneration earned for the services performed in Canada, may the US Employee request a waiver ("Regulation 102 Waiver") in respect of the requirement to withhold under section 102 of the Regulations to the Income Tax Act ("Regulations") and if so, will it be issued? 4. Is the US Employee required to file a personal income tax return in Canada?

Position: 1.Article VII will apply to the Service Fee paid by Canco to US Co. Canco has an obligation under paragraph 153(1)(g) of the Act and section 105 of the Regulations, to withhold 15% of the Service Fee paid to US Co pursuant to the Service Contract. 2. Article XV of the Treaty will apply to the remuneration earned by the US Employee for the services performed in Canada. The US Employee will be exempt from Canadian tax pursuant to subparagraph 2(b) of Article XV of the Treaty since the remuneration is not borne by Canco or a PE in Canada. 3. Since the US Employee is not subject to Canadian taxation on the remuneration for his services exercised in Canada, the CRA will grant a Regulation 102 Waiver in this case. 4. Pursuant to subsection 150(1.1) an individual is not required to file a Canadian income tax return for the year, if there is no Canadian tax payable under Part I of the Act for that year. Notwithstanding the foregoing, a non-resident individual must file a Canadian income tax return if he has a taxable capital gain (otherwise than from an excluded disposition) or disposes of a taxable Canadian property (otherwise than in an excluded disposition) in the year, or at the end of the year the individual's HBP balance or LLP balance (as defined in subsection 146.01(1) or 146.02(1)) is a positive amount.