Income Tax Severed Letters - 2011-10-14

Principal Issues: Can Parent A who has a child that lives with Parent B claim the children's fitness tax credit (CFTC) for the tax year?

Position: Parent A should be able to claim the CFTC provided that the expense is an eligible fitness expense as defined under subsection 118.03(1) of the Act, and the maximum amount of $500 for the qualifying child has not been used for the tax year by any other individual that may be entitled to claim it.

Reasons: Eligibility to claim the CFTC does not depend on whether the child resides with the parent who is claiming the credit.

Principal Issues: 1. Whether an investment tax credit can be claimed by the lessee when both the lessee and lessor make an election under subsection 16.1(1) to have the leased property treated as a purchase and loan. 2. Whether certain leased property used in the construction of roads and/or railway lines leading to an iron ore mine would be considered qualified property as the term is defined in subsection 127(9) of the Act.

Position: 1.Yes 2. Probably not.

Reasons: 1. Administrative position. 2. The building of roads or a railway line would not appear to be an activity that would be considered as extracting minerals or processing ore.

Principal Issues: 1. Whether a Canadian resident having an interest in an American life annuity is required to file Form T1135 (Foreign Income Verification Statement) in relation to the American life annuity? 2. How to determine whether the cost amount of the American life annuity exceeds $100,000 Canadian dollars?

Position: 1. General comments, yes if the cost exceeds $100,000. 2. Taking into consideration paragraphs (e) or (f) (as applicable) in the definition of the "cost amount" in subsection 248(1) of the Act, the taxpayer needs to obtain this information from the administrators of the American life annuity or an actuary.

Reasons: 1. subsection 233.3(1) of the Act. 2. Original American life annuity contract signed between the taxpayer's husband and the insurance company administering the American life annuity should stipulate the cost amount.

Principal Issues: Whether paragraph 55(3.1) (c) or (d) would apply as a result of the disposition by the distributing corporation in favour of a non-related person of real estate for cash consideration prior to a butterfly reorganisation.

Position: No.

Reasons: Based on the interpretation of the law.

Principal Issues: Can separated spouses who each pay a portion of the day care costs for their child each be issued a separate tax receipt from the daycare centre and claim their respective amounts for a child care expense deduction for tax purposes?

Position: The receipts for the child care expenses should be issued by the daycare to the payer of the fees. If each parent pays the daycare, then each parent should be issued a receipt for the amount paid by that parent. The fact that a receipt has been issued to a parent does not automatically entitle that parent to make a deduction for child care expenses in computing income for tax purposes. A deduction for child care expenses can only be made if all of the conditions of section 63 of the Act are met, including the requirement that the parent making the claim for the child care expenses paid by them resides with the child at the time that the expense was incurred and made to enable that parent to engage in one of the eligible activities listed in section 63 of the Act.

Reasons: The law.

Principal Issues: Whether the cost of resurfacing a driveway would qualify as a medical expense for an individual with a severe and prolonged mobility impairment for purposes of paragraph 118.2(2)(l.6)? Would the cost of installing a walkway from the individual's house to the driveway also qualify as a medical expense under that provision or any other provision of the ITA?

Position: 1. The cost of the driveway would qualify as a medical expense. 2. The cost of the walkway would not qualify as a medical expense.

Reasons: The law.

Principal Issues: Whether cosmetic procedures to treat acne vulgaris are ineligible for the METC by virtue of subsection 118.2(2.1).

Position: Generally, cosmetic procedures to treat common acne would not qualify for the METC by virtue of subsection 118.2(2.1). However, procedures to treat acne that is severe, persistent and disfiguring would generally be considered to have a medical or reconstructive purpose and thus subsection 118.2(2.1) would not apply. Therefore, such procedures may qualify for the METC if all the conditions under paragraph 118.2(2)(a) are also met.

Reasons: Wording of provision. However, it is a question of fact whether or not a medical service is provided purely for cosmetic purposes and whether or not it is necessary for medical or reconstructive purposes.

Principal Issues: Whether two proposed new prizes to be given by XXXXXXXXXX will qualify as prescribed prizes for the purposes of paragraph 56(1)(n) of the ITA under section 7700 of the Regulations.

Position: It is a question of fact whether a particular award can qualify as a prescribed prize and, as such, can only be determined upon a review of all relevant documentation and information.

Reasons: We have not been provided with sufficient information to establish whether the proposed awards can meet the requirements of a prescribed prize.