Income Tax Severed Letters - 2011-12-09

Technical Interpretation - External

30 November 2011 External T.I. 2011-0424151E5 - Active Business Income and Rental Income

Unedited CRA Tags
125(1), 125(2), 125(3), 125(7), 129(4), 129(6), 248(1)

Principal Issues: 1.Will rental income and management fees received by a corporation from an associated corporation be considered income of the corporation from an active business. 2. Whether the small business deduction must be shared by associated corporations.

Position: 1. Question of fact. 2. Yes

Reasons: 1 and 2 – The law

24 November 2011 External T.I. 2011-0424631E5 F - Subsection 256(2)

Unedited CRA Tags
125(5.1); 256(2); 181.5(7); 181.1(2); 181.1(4)
s. 256(2) election causes Aco and Bco not be associated with Cco for s. 125(5.1), but not ss. 181.1(2) and (4), purposes
s. 256(2)(b)(ii) election inapplicable for ss. 181.1(2) and (4) purposes

Principal Issues: a) Whether proposed amendment to ss 125(5.1) should be taken into account when calculating business limit reduction for taxation years starting after XXXXXXXXXX . b) Whether calculation of business limit is correct in the particular situation.

Position: a) Yes. b) Yes.

Reasons: a) Previous positions. b) Question of fact.

22 November 2011 External T.I. 2011-0404021E5 F - Revenu des entrepreneurs

renovation, and sewage system work, does not qualify as "construction" eligible for completion method
Words and Phrases

Principales Questions: 1) Est-ce que la méthode d'achèvement des travaux telle qu'indiquée au paragraphe 12 du bulletin d'interprétation IT-92R2 peut s'appliquer aux contrats autres qu'aux contrats de construction?
2) Est-ce que les entrepreneurs peuvent utiliser la méthode d'achèvement des travaux pour tous les contrats de leur entreprise ou peuvent-ils l'utiliser seulement pour les contrats de construction visés par ce bulletin d'interprétation?
3) Est-ce que cette méthode peut s'appliquer aux contribuables effectuant des travaux d'aqueduc ou d'égout ou des travaux de rénovations d'immeubles?

Position Adoptée: 1) Non.
2) Les entrepreneurs ne peuvent utiliser la méthode d'achèvement des travaux que pour les contrats de construction.
3) Non.

Raisons: 1) et 2) Libellé du paragraphe 1 du IT-92R2.
3) Un contrat de rénovation n'est pas un contrat de construction aux fins du IT-92R2. Un aqueduc ou un égout n'est pas une structure similaire à un immeuble, une route, un barrage ou un pont.

16 November 2011 External T.I. 2011-0423861E5 F - paragraph 53(1)b)

Unedited CRA Tags
53(1)b), 89(1)
example of application of s. 53(1)(b) on dirty s. 85 exchange of common shares with partial SIOH for high PUC/ACB prefs and low PUC/ACB common shares

Principal Issues: How do paragraph 53(1)b) and clause 89(1)a)(i)(A), proposed on July 16, 2010, apply in a situation where subsection 55(2) applies and in a situation where subsection 55(2) does not apply.

Position: It depends on the facts.

Reasons: Previous positions and wording of the proposed amendment.

20 April 2009 External T.I. 2009-0309811E5 - Interest deductibility - 20(1)(c)

Principal Issues: Is an amount deductible as "interest" on borrowings from an Islamic institution, pursuant to paragraph 20(1)(c) of the Act, where the lender charges the amount as "Rental payments" instead of interest

Position: Unable to determine in the context of an interpretation request

Reasons: Depends on the facts of the case- should be determined in the context of a ruling request

Technical Interpretation - Internal

24 October 2011 Internal T.I. 2011-0404731I7 - XXXXXXXXXX -Paragraph 149(1)(l)

Unedited CRA Tags

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

Position: It likely did not qualify.

Reasons: The Corporation may be operating for a profit purpose. Not clear if income is available for the personal benefit of members.