Income Tax Severed Letters - 2011-11-18

Ruling

2011 Ruling 2010-0372611R3 - First Nation - 149(1)(c)

Unedited CRA Tags
149(1)(c)

Principal Issues: Is the First Nation a public body performing a function of government as contemplated by 149(1)(c)?

Position: Yes.

Reasons: The First Nation is governed by an elected chief and council and performs many functions of government.

2011 Ruling 2011-0399141R3 - Software Distribution, Medium

Unedited CRA Tags
ITA: 212(1)(d)(vi)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d) - Subparagraph 212(1)(d)(vi)
distribution of software

Principal Issues: 1. Where the non-resident payee holds the copyright, are payments made to the non-resident payee for the right to "distribute" software exempt from withholding tax by virtue of subparagraph 212(1)(d)(vi) of the Act?
2. Would license payments to non-resident related parties for software acquired for the purpose of distribution to end-users, in any of the following forms:
(i) downloaded via electronic, satellite, internet, or other wireless connection, or
(ii) delivered on physical media, or
(iii) embedded or pre-loaded in integrated circuits, read-only memory, or other storage devices on purchased hardware be classified as exempt from the 25% withholding tax under subparagraph 212(1)(d)(vi) with respect of a copyright in respect of a reproduced work?

Position: 1. Yes
2. Yes

Reasons: 1. Payments for distribution rights are considered copyright royalties as the right to distribution is viewed as a component of the right to reproduce or is ancillary to such a right.
2. Payments for software acquired for distribution to end-users, in the various mediums, whether downloaded electronically, delivered on physical media, or embedded or pre-loaded in integrated circuits or ROM, are exempt under subparagraph 212(1)(d)(vi) because the custom software in this case, are in fact a reproduction of the original copyright software and thus, meets the requirements of subparagraph 212(1)(d)(vi).

Technical Interpretation - External

15 November 2011 External T.I. 2011-0423671E5 - Expenditure Limit

Unedited CRA Tags
127(10.2), 256, 2(3)
Summary Under
Tax Topics - Income Tax Act - Section 127 - Subsection 127(10.2)

Principal Issues: Whether an associated foreign subsidiary's taxable income must be considered for the determination of the expenditure limit under subsection 127(10.2) of the Act.

Position: Yes.

Reasons: The definition of "associated corporation" contained in section 256 of the Act does not exclude associated foreign corporations.

10 November 2011 External T.I. 2011-0421931E5 - Taxability of Settlement Amount

Unedited CRA Tags
56(1)(a); 248(1)

Principal Issues: Whether a settlement payment made to relinquish an employee's potential right to reinstatement is taxable as income.

Position: The settlement as described appears to meet the definition of a retiring allowance.

Reasons: The payment satisfies the two-prong test established by the courts for the purpose of determining whether a payment is a retiring allowance.

2 November 2011 External T.I. 2010-0390601E5 - IFRS: Current and prior year's Retained Earnings

Unedited CRA Tags
181.2(3) 125(5.1), 152(4), TA 81, TA 82(1)

Principal Issues: Where a corporation decides to report its assets under fair value for its 2010 year the corporation will restate its 2009 financial statements for the purpose of providing comparative results for its 2009 year. As a result, the corporation's Retained Earnings for 2009 and 2010 will be increased. 1. Is the corporation required to amend its 2009 tax return? 2. Will the increased Retained Earnings balance impact the Small Business Deduction limit? 3. Will the increased Retained Earnings balance impact the corporation's Ontario capital tax liability? 4. Is there any relief in respect of Ontario capital tax related to the increase in the Retained Earnings?

Position: 1. No. 2. The change in the Retained Earnings balance will not impact the small business deduction limit reduction in the 2009 or 2010 returns; however it will impact the limit reduction in the 2011 tax return. 3. Ontario capital tax for the 2009 taxation year is not impacted; however, it is for the 2010 taxation year. 4. No.

Reasons: 1. The restatement of a prior year's financial statements merely for comparative purposes in the corporation's current year's financial statements does not imply that the prior year's taxable capital is incorrect. 2. Generally, the business limit reduction in subsection 125(5.1) is based on the amount that would be the corporation's Part I.3 tax for the preceding year. The corporation is not required to base the amount that would be the Part I.3 tax for the corporation's 2009 taxation year on its restated, IFRS-based Retained Earnings balance. Accordingly, no change is required to the business limit reduction for the 2010 year. However, as the corporation files its 2010 return based on its IFRS financial statements, the 2010 IFRS-based Retained Earnings balance will impact the 2011 business limit reduction. 3. We do not view the restatement of the 2009 Retained Earnings as an error in respect of the originally filed 2009 return. 4. The Taxation Act, 2007 does not contain a provision that excludes the increase in Retained Earnings from taxable capital for Ontario capital tax purposes.

13 October 2011 External T.I. 2010-0369811E5 - Payments to Caregiver / Social Assistance

Unedited CRA Tags
ITA 81(1)(h); 56 (1)(u)

Principal Issues: Whether payments received by caregiver under the Persons with Developmental Disabilities Program are excluded from income under paragraph 81(1)(h) of the ITA.

Position: Yes. The payments are implicitly considered to be made on the basis of a means, needs or income test.

Reasons: All of the requirements of paragraph 81(1)(h) are met.

Technical Interpretation - Internal

10 November 2011 Internal T.I. 2011-0410851I7 - Paragraph 149(1)(l)

Unedited CRA Tags
149(1)(l)

Principal Issues: Did the Corporation qualify for the exemption from tax provided by paragraph 149(1)(l) for the years under review?

Position: No.

Reasons: The Corporation was not operated exclusively for a purpose other than profit. In addition, income of the Corporation was available for the personal benefit of its members.

8 November 2011 Internal T.I. 2011-0416651I7 F - Crédit d'impôt pour frais médicaux

Unedited CRA Tags
118.2(2); 118.2(2)a)
Summary Under
Tax Topics - Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(a)
interest expense on loan to finance surgery cannot qualify

Principales Questions: Est-ce que des frais d'intérêt que la contribuable a engagé relativement à des implants dentaires peuvent donner droit au crédit d'impôt pour frais médicaux?

Position Adoptée: Non.

Raisons: Ces frais ne sont pas payés à un médecin, à un dentiste, à une infirmière ou un infirmier, à un hôpital public ou à un hôpital privé agréé aux termes de l'alinéa 118.2(2)a).

8 November 2011 Internal T.I. 2011-0417531I7 - Treaty provisions for tax exempt status in Canada

Unedited CRA Tags
Article XXI

Principal Issues: Whether the "Retiree Medical Benefits Trust", as a section 501(c)(9) entity, which is exempt from income tax in the US, qualifies for an exemption of Part XIII withholding tax on dividend and interest income earned by the trust.

Position: Only dividend or interest income that is not in respect of income from carrying on a business.

Reasons: The Retiree Medical Benefits Trusts meets the requirement in paragraph 2 of Article XXI of the Canada- US Treaty; however paragraph 2 is subject to paragraph 4 which excludes any income that is income from carrying on a business or income from a related person who is not a person who is also exempt under Article XXI.

4 November 2011 Internal T.I. 2011-0413341I7 F - Bien agricole admissible

Unedited CRA Tags
110.6(1); 110.6(1.3)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Farming
nursery qualifies as farming if focused on growing rather than selling
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Share of the Capital Stock of a Family Farm or Fishing Corporation - Paragraph (a) - Subparagraph (a)(i)
meaning of “actively engaged on a regular and continuous basis” requirement
Words and Phrases
actively engaged on a regular and continuous basis
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1.3) - Paragraph 110.6(1.3)(c)
s. 110.6(19) election effected a post-1987 acquisition
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(10) - Child
extended meaning of "child"
Summary Under
Tax Topics - Income Tax Act - Section 73 - Subsection 73(3) - Paragraph 73(3)(c)
rollover unavailable where taxpayer rented out the land to a farmer

Principales Questions: A. Est-ce que la terre agricole se qualifie à titre de bien agricole admissible pour le contribuable?
B. Puisque le choix prévu au paragraphe 110.6(19) a été effectué relativement à la terre agricole en date du 22 février 1994, peut-on considérer que le bien a été acquis la dernière fois après 1987?
C. Quels seraient les impacts fiscaux si le contribuable faisait don de cette terre à ses fils de son vivant ou si ce transfert se faisait au décès du contribuable?

Position Adoptée: A. Question de fait. Il manque certaines informations mais il est possible que oui.
B. Oui, le bien a été acquis la dernière fois après 1987.
C. Voir la discussion ci-dessous.

Raisons: Loi de l'impôt sur le revenu.