Income Tax Severed Letters - 2011-09-02

Ruling

2011 Ruling 2010-0388761R3 - RCA and Credit Facility Agreement

Unedited CRA Tags
20(1)(r); 56(1)(x); 153(1)(p); 207.5(2); 207.7(1); 207.5(1) def'n of "refundable tax"; Regs 103(7) and 108(1)

Principal Issues: Will the posting of collateral under the Credit Facility Agreements constitute a contribution to an RCA for purposes of paragraph 153(1)(p) or Part XI.3 of the Act?

Position: Not in this case.

Reasons: Provision of security is in respect of the overall credit arrangements; it is not specific to the RCAs.

2011 Ruling 2010-0389651R3 - Employee Life and Health Trust

Unedited CRA Tags
144.1

Principal Issues:
1. Does Section 80 apply to the assumption by the Trust of Employerco's obligation to make certain post-retirement benefits?
2. Does the Trust qualify as an ELHT under subsection 144.1(2) of the Act?
3. Does the Actuarial Report satisfy the criteria set forth in subsection 144.1(5) of the Act?
4. Will the Actuarial Disbursements for a particular taxation year set forth in the Actuarial Report be deductible in that particular year pursuant to subsections 144.1(4) and (5) of the Act.

Position:
1. No
2. Yes
3. Yes
4. Yes

Ministerial Correspondence

22 August 2011 Ministerial Correspondence 2011-0416421M4 - Tax paid under the ITA

Principal Issues: The taxpayer suggests that the CRA's Web site needs improvement and the Income Tax Act should be made less complex.

Position: The CRA is making changes to its Web site to enhance accessibility for persons with disabilities, to improve usability, and to modify its visual appeal. Concerns about the complexity of the Income Tax Act relate to tax policy, which is the responsibility of the Department of Finance Canada.

Technical Interpretation - External

26 August 2011 External T.I. 2010-0371031E5 - Deemed Disposition of Trust Property on Death

Unedited CRA Tags
104(4)(a.4), 104(6), 70(5), 70(6)

Principal Issues:
1. Whether 104(4)(a.4) applies to a trust if the will of sole beneficiary stipulates that the trust property will form part of his/her estate
2. Whether gains realized as a consequence of 104(4)(a.4) may be deducted by the trust under 104(6)

Position:
1. Yes
2. No

Reasons:
1. 104(4)(a.4) applies to trust to deem the disposition at the end of the day of death
2. Reading of 104(6)(b)(iii)

26 August 2011 External T.I. 2010-0379431E5 - Deemed Disposition of Trust Property on Death

Unedited CRA Tags
104(a)(a)(ii.1), 108(1) Testamentary Trust

Principal Issues:
1. In light of Nussey and pursuant to the terms of the trust and operation of law, whether the deemed disposition should be reported on the final return of the trust or the settlor's terminal T1 return
2. The alter ego assets so distributed, if forming part of the trust created under settlor's will, would preclude the trust from being a testamentary trust

Position:
1. Final Return of the Trust
2. Depends

Reasons:
1. Reading of 104(4)(a)(ii.1)
2. Question of fact

25 August 2011 External T.I. 2011-0417511E5 F - CDA and Excessive dividend

Unedited CRA Tags
83(2); 89(1); 184(2)
excess capital dividend does not reduce payor’s CDA and increases corporate shareholder’s CDA

Principales Questions: Where a corporation elected under subsection 83(2) in respect of a full amount of a dividend, would the part of the dividend that exceeds the CDA immediately before the dividend became payable, reduce the CDA of the dividend payer after the dividend became payable?

Position Adoptée: No.

Raisons: Wording of paragraph 83(2)a) and of the definition of CDA in subsection 89(1).

24 August 2011 External T.I. 2011-0393401E5 - Transfer of shares of a single-purpose corporation

Unedited CRA Tags
15(1); definition of "disposition" in 248(1)

Principal Issues: Whether a taxpayer, after transferring shares of a single-purpose corporation ("SPC") to an alter ego trust, will be subject to a taxable benefit under subsection 15(1) of the Income Tax Act if the taxpayer utilizes real property (that is held by the SPC and is situated in the United States) for personal reasons?

Position: Yes.

Reasons: Transfer of SPC's shares to an alter ego trust will be considered a disposition pursuant to paragraph (c) of the definition of "disposition" thus triggering the application of the second bullet in the CRA administrative policy outlined in Income Tax Technical News #31R2. The exception in paragraph (e) of the definition is not applicable.

22 August 2011 External T.I. 2011-0415821E5 - Whether Equipment is "used"

Unedited CRA Tags
127(9), 2902 Regulations

Principal Issues: Whether a pre-owned piece of equipment substantially refurbished and sold again by the manufacturer with a similar warranty to that offered on the purchase of new equipment is considered to be new for ITC purposes.

Position: Yes.

Reasons: Paragraph 24 of IT-331R.

22 August 2011 External T.I. 2010-0374461E5 - Prescribed prize

Unedited CRA Tags
56(1)(n), 7700 of Regulations

Principal Issues: Is a $XXXXXXXXXX prize awarded by the XXXXXXXXXX to a professor at XXXXXXXXXX considered to be a "prescribed prize" for the purposes of subparagraph 56(1)(n)(i) and section 7700 of the Income Tax Regulations?

Position: Question of fact but likely yes.

Reasons: Based on the information provided, it appears that the Prize is awarded for meritorious achievement and is not a form of compensation for services rendered by the professor. Based on prior interpretations, it appears that the Prize meets the public recognition requirement despite not being widely publicized by the media.

22 August 2011 External T.I. 2011-0414561E5 - Capital or Current Expense

Unedited CRA Tags
18(1)(b), 20(1)(a), Schedule II of the Regulations

Principal Issues: Whether expenditures incurred by a taxpayer for a rental property would be a capital or current expense.

Position: General comments

Reasons: Question of fact

22 August 2011 External T.I. 2011-0415161E5 - Purification - Small Business Corporation

Unedited CRA Tags
110.6(2.1), 248(1) small business corporation

Principal Issues: 1) Can a corporation be purified by simply netting excess cash (i.e., a non-active business asset) against current liabilities owing by the corporation? 2) Can a corporation be purified by "removing" non-active business assets solely by making one or more accounting journal entries?

Position: 1) No. 2) No.

Reasons: 1 and 2 - The law.

17 August 2011 External T.I. 2011-0405551E5 - Swiss disability and retirement pension payments

Unedited CRA Tags
56(1)(a)(i); Article 18 of Canada-Switzerland Tax Convention

Principal Issues: 1. Whether periodic disability pension payments received under Switzerland's disability insurance legislation are taxable to a Canadian resident.
2. Whether retirement pension payments received under the Geneva State Pension Plan for public servants are taxable to a Canadian resident.

Position: 1. Yes. 2. In this case, no.

Reasons: 1. Periodic disability pension payments received under Switzerland's social security legislation are taxable as superannuation or pension benefits under subparagraph 56(1)(a)(i), with no exemption under Article 18 of the Canada-Switzerland tax convention. 2. Retirement pension payments from a political subdivision of Switzerland are taxable only by Switzerland under subparagraph 18(2)(a) of the Canada-Switzerland tax convention where paid to an individual who performed functions of a governmental nature.

16 August 2011 External T.I. 2009-0342101E5 - Operation of Ships

Unedited CRA Tags
Paragraph 81(1)(c) and subsection 250(6)

Principal Issues: To clarify the CRA's published positions in E 9611145 on what constitutes the operation of ships. To provide some guidance on when the Non-Operating of Ships Activities of a shipping company such as Ship Leasing will be considered incidental to shipping company's Operation of Ships business. To provide comments on how the CRA's published positions apply with respect to the Sub-Time Chartering Out of ships when a shipping company follows a certain business model or commits a ship to a Pool Arrangement.

Position: See response

Reasons: See response

11 August 2011 External T.I. 2011-0394591E5 - Caregiver Amount

Unedited CRA Tags
118(1)(c.1); 118(4)(c) & (d); 152(4); 164(1); 164(1.5)(a); 152(4.2)

Principal Issues: 1. What is meant by "maintained a dwelling" for the caregiver amount? Must the individual own the residence/home or could the residence/home be owned by the cared for individual(s)?
2. Where the individual otherwise qualifies for the caregiver amount, what type of documents would be needed to support the claim?
3. Can the previous years returns be adjusted for the caregiver amount, if same caregiver situation existed in prior years?
4. Could multiple claims for the caregiver amount be claimed in one tax year?

Position: 1. A question of fact. 2. Depends. 3. Likely. 4. Yes.

Reasons: Legislation and previous positions

2 August 2011 External T.I. 2011-0397221E5 - T5s Filed by Amalgamated Corporation

Unedited CRA Tags
s. 87; reg. 201

Principal Issues: Whether an amalgamated corporation can prepare T5 Information Return?

Position: Yes.

Reasons: If the applicable corporate or company law governing an amalgamation states that the predecessor corporations are continued in the amalgamated corporation, an amalgamated corporation could prepare information slips of a predecessor corporation

29 July 2011 External T.I. 2011-0415151E5 - Non-Resident Locally Engaged Employees

Unedited CRA Tags
250(1); 115(1)(v); 115(2)(c); 115(2)(d): Article XIX of the Canada-Treaty

Principal Issues: Is a non-resident locally engaged employee subject to Canadian income tax on her employment income from a Canadian consulate?

Position: Yes.

Reasons: Paragraphs 115(2)(c) and 115(2)(d) deem the LEE to be employed in Canada.

26 July 2011 External T.I. 2010-0390911E5 - Interaction of ss 104(4) and 70(5.3) of the Act

Unedited CRA Tags
70(5.3) and 104(4)

Principal Issues: Do the provisions of 70(5.3) apply to a hypothetical set of facts in which subsection 104(4) applies?

Position: Yes

Reasons: Legislative provisions

14 July 2011 External T.I. 2011-0400631E5 - child care expenses

Unedited CRA Tags
63

Principal Issues: Can parents pay grandparents to provide child care services for their children and claim a deduction under section 63 of the Income Tax Act ( the 'Act")?

Position: Providing all of the conditions are met under section 63 of the Act a parent can pay grandparents of their children to provide child care services to enable the parents to go to work and have the expenses qualify as child care expenses.

Reasons: It is possible under the legislation to have grandparents of eligible children provide the child care services and have the amounts qualify as a child care expense under subsection 63(3) of the Act.

Conference

8 August 2011 Roundtable, 2011-0409961C6 - 2011 CICA Roundtable follow-up question

Principal Issues: Follow-up question to question 20(c) of the 2011 CICA Roundtable concerning valuation of a life estate on death of the holder.

Position: General comments provided - valuation issues should be directed to the appropriate TSO.

Reasons: Question of fact

Technical Interpretation - Internal

24 August 2011 Internal T.I. 2011-0414751I7 - XXXXXXXXXX Plan Payments

Unedited CRA Tags
6(1)(f)

Principal Issues: What is the tax status of the benefits received by XXXXXXXXXX employees from the XXXXXXXXXX Plan?

Position: Question of fact, but in this case it appears the benefits are received under an employer-funded wage loss replacement plan and are taxable as income from employment.

Reasons: 6(1)(f) and IT-478.

August 24, 2011

10 August 2011 Internal T.I. 2011-0399191I7 - Assessing a Dissolved Company

Unedited CRA Tags
152, 159(1), 248(1) "legal representative"

Principal Issues: Whether the parent can be assessed for taxes owing by its subsidiary that has been wound up into the parent and dissolved.

Position: Yes.

Reasons: The parent company can be considered to be the legal representative of its subsidiary.

9 August 2011 Internal T.I. 2011-0410301I7 - Offset of Post-Bankruptcy Refunds

Unedited CRA Tags
s. 152(1), 159(3), 160(1), 164(2), 224(4), 227(4), & (4.1) ITA; 227.1(1); s. 270(4), 317(7), 323(1), 325(1) ETA; s. 67(1)(c ), 97(3) BIA

Principal Issues: Whether a refund for the calendar year of a bankruptcy can be offset?

Position: Yes.

Reasons: A refund in respect of the calendar year of bankruptcy forms part of a bankrupt estate, pursuant to paragraph 67(1)(c) BIA. However, exceptions permit offset under subsection 164(2) to limit its operation. The exceptions include:
(1) liability of a proprietorship or partnership for source deductions or GST/HST that arose before the proprietor's or partner's bankruptcy;
(2) a derivative assessment under subsection 159(3), 160(1), 224(4), or 227.1(1) ITA where the liability arose from an act or failure that occurred after the date of bankruptcy;
(3) a derivative assessment under subsection 270(4), 317(7), 323(1), or 325(1) ETA where the liability arose from an act or failure that occurred after the date of bankruptcy;
(4) an income tax liability for a year subsequent to the year of bankruptcy where the liability arose before the return claiming the refund was filed;
(5) a derivative assessment for a director's liability under subsection 227.1(1) ITA or 323(1) ETA where the corporation's failure to remit occurred before the individual's bankruptcy, but the precondition in paragraphs 227.1(2)(a), (b), or (c ) ITA or 323(2)(a), (b), or (c) ETA was not met until after the date of the individual's bankruptcy.
Legal advice should be sought:
(1) to determine whether a deemed trust claim under subsection 227(4) or (4.1) ITA in respect of a source deductions liability of a proprietorship or partnership which arose before the bankruptcy of the proprietor or partner would have priority over paragraph 67(1)(c) BIA; and
(2) to ascertain if other situations exist where subsection 164(2) ITA might have priority over paragraph 67(1)(c) BIA.

4 August 2011 Internal T.I. 2011-0404651I7 - Authorized Representative Information

Principal Issues: Updating owner and authorized representative information upon an amalgamation.

Position: See below.

Reasons: The maintenance of corporate governance information is a policy matter.