Income Tax Severed Letters - 2011-12-16

Ruling

2011 Ruling 2011-0415801R3 - Borrowed money, shares of subsidiary

Unedited CRA Tags
20(1)(c); 20(1)(e); 20(3)

Principal Issues: (1) Would the taxpayer be required to accrue and include in income, under section 9 of the Act, foreign exchange gains and losses in reference to its borrowings; (2) would expenses incurred in the course of the issuance of a portion of its borrowings be deductible under paragraph 20(1)(e)(ii); (3) would interest payable on its borrowings be deductible pursuant to paragraph 20(1)(c) and subsection 20(3)?

Position: (1) No; (2) Yes; (3) Yes

Reasons: (1) and (3) Borrowed money was used to purchase shares of a foreign affiliate that was "capital property" to the taxpayer, within the meaning of section 54; (2) the expenses were incurred in the course of borrowing money used for the purpose of earning income from property which was not exempt income.

Technical Interpretation - External

9 December 2011 External T.I. 2011-0423601E5 - Pre-April 2007 GST penalty

Unedited CRA Tags
67.6; Reg 7309

Principal Issues: Can taxpayers claim deductions for fines and penalties imposed after March 22, 2004 under paragraphs 280(1)(a), 280(1.1)(a) or 280(2)(a) of the Excise Tax Act (the "ETA") on a GST/HST amount outstanding as of March 31, 2007 that is paid or payable in a taxation year that began after April 1, 2007.

Position: Yes.

Reasons: It remains our position that for the ease of administration, a penalty imposed after March 22, 2004 under any of paragraphs 280(1)(a), 280(1.1)(a) and 280(2)(a) of the ETA, on a GST/HST amount outstanding as of March 31, 2007 will be deductible in the year in which it was paid or became payable even if the penalty is imposed in a taxation year that began after April 1, 2007 subject to the GST/HST liability arising in the course of earning income from a business or property.

9 December 2011 External T.I. 2011-0407421E5 - Lump-sum settlement payment

Unedited CRA Tags
5(1); 6(1); 12(1)(c); 153(1); Reg. 100; Reg. 102; Reg. 103; Reg. 106; Reg. Sch. I

Principal Issues: 1. What is the source of income for a lump-sum payment that arose as a result of a decision from the XXXXXXXXXX ?
2. How much should be withheld from the lump-sum payment?

Position: 1. The lump-sum payment contained an amount for lost wages and benefits and an amount for interest. The source of income for the lost wages and benefits would be employment income as the individual was reinstated. The source of income for the interest payment would be income from property.
2. The amount to be deducted or withheld by the employer from such a payment is the tax that may reasonably be expected to be payable under the Act by the employee from all remuneration that may reasonably be expected to be paid by the employer in that taxation year.

Reasons: 1. Paragraph 10 of IT-337R4 states that the amount received on account damages will be employment income if the employee retains his or her employment or is reinstated. The interest would be treated as income from property as it would be included in income pursuant to paragraph 12(1)(c).
2. Section 106 of the Regulations provides the rules for withholding deductions where an employer makes a payment of remuneration to an employee for a pay period in an amount that is greater than any amount provided for in Schedule I.

9 December 2011 External T.I. 2011-0429321E5 F - Changement d'usage

Unedited CRA Tags
45(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a)
FMV is measured at the time of change of use

Principales Questions: Lorsqu'il faut calculer le gain en capital découlant d'un changement d'usage d'un bien aux termes de l'alinéa 45(1)a), comment fait-on pour établir le produit de disposition du contribuable?

Position Adoptée: Il faut utiliser la juste valeur marchande du bien en date du changement d'usage.

Raisons: Loi de l'impôt sur le revenu.

8 December 2011 External T.I. 2011-0421051E5 - Principal residence - Bed and Breakfast

Unedited CRA Tags
40(2)(b); 45(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (e)

Principal Issues: Whether the operation of a bed and breakfast affects the taxpayer's claim of the principal residence exemption.

Position: None taken.

Reasons: General comments. IT-120R6.

8 December 2011 External T.I. 2011-0427451E5 F - Statut de résidence fiscale

Unedited CRA Tags
2
Summary Under
Tax Topics - Income Tax Act - Section 2 - Subsection 2(1)
Rulings Directorate does not determine residency

Principales Questions: La contribuable qui a déjà quitté le Canada aurait aimé que nous intervenions afin de déterminer son statut de résidence fiscale.

Position Adoptée: Nous n'avons pas statué sur sa résidence fiscale.

Raisons: La contribuable est déjà en pourparlers avec le Bureau international des services fiscaux à qui elle a soumis une demande de détermination NR73. Qui plus est, il n'est pas du mandat de notre Direction d'établir le statut de résidence fiscale des contribuables.

6 December 2011 External T.I. 2010-0384701E5 F - Décès contribuable - Immobilisation admissible

Unedited CRA Tags
70(5.1), 40(1)a)(iii), 152
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(5.1)
application of s. 70(5.1) to bequest of goodwill
Summary Under
Tax Topics - General Concepts - Effective Date
CRA policy of price adjustment clauses inapplicable where deferred sale price subsequently adjusted
Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4.2)
CRA policy for adjusting a statute-barred year for a reduction in the 5th year of staged-proceeds sale

Principales Questions: Vous aimeriez savoir si le paragraphe 70(5.1) s'applique à la situation en l'espèce ? Vous aimeriez également savoir quelles sont les conséquences fiscales de l'ajustement du prix à la fin de l'année 5 lorsqu'une réserve au titre de gains en capital imposable a été calculée selon le sous-alinéa 40(1)a)(iii) en tenant compte que les années en cause peuvent être prescrite?

Position Adoptée: Le paragraphe 70(5.1) ne fait pas l'objet d'un choix, il s'applique automatiquement lorsque toutes les conditions d'application sont respectées. Puisque l'application et le fonctionnement des clauses de rajustement de prix ne sont pas des opérations projetées, nous vous invitons à consulter le BSF de votre région qui saura vous fournir de plus amples renseignements à savoir si votre clause peut être acceptée

6 December 2011 External T.I. 2011-0425111E5 - CCA Class of GPS Equipment

Unedited CRA Tags
20(1)(a), Regulation 1104(2), Class 8, 50, 52 Schedule II

Principal Issues: Whether an advanced GNSS receiver and GPS equipment used in the construction, engineering and land surveying industry is included in Class 52.

Position: No

Reasons: While it is a question of fact, such property is a special purpose electronic device never explicitly included in any other class. Such property would generally fall into class 8.

28 November 2011 External T.I. 2011-0422891E5 - Payments to Investors

Unedited CRA Tags
12(1)(g), 9

Principal Issues: Are the amounts investors receive subject to income tax and should the amounts be reported on a T-5?

Position: Amounts are income subject to tax and should be reported on a T-5 under box 17

Reasons: Payments are based on sales; seem to be royalty payments.

24 November 2011 External T.I. 2011-0397811E5 - Issuance of T4A's

Unedited CRA Tags
200(2)

Principal Issues: 1. Who is responsible for issuing the T4A for educational assistance.

Position: 1. The Payer is responsible for issuing the T4A.

Reasons: 1. Requirement under Reg. 200(2).

22 November 2011 External T.I. 2011-0414691E5 - Principal Residence Exemption Corporation

Unedited CRA Tags
40(2)(b); 54; 248(1)

Principal Issues: 1. Can a corporation claim the principal residence exemption?

Position: 1. No.

Reasons: 1. The principal residence exemption is available only to individuals.

22 November 2011 External T.I. 2011-0416011E5 - Principal Residence

Unedited CRA Tags
40(2)(b); 54

Principal Issues: 1. Does a portion of land qualify for the principal residence exemption

Position: 1. No

Reasons: 1. Excess land is not necessary for the use and enjoyment as a principal residence

22 November 2011 External T.I. 2011-0395881E5 - Research vs Scholarship for the issuance of T4As?

Unedited CRA Tags
56(1)(n)(i); 56(1)(o); 56(3); 118.5

Principal Issues: Should the T4As be issued on the basis of being a research or scholarship grant, for the study grants described?

Position: Depends

Reasons: A question of fact

22 November 2011 External T.I. 2011-0396551E5 - Social Assistance

Unedited CRA Tags
81(1)(h)

Principal Issues: 1. Is the taxation of social assistance quantum based?

Position: 1. No

Reasons: 1. It is a question of fact as to whether the requirements to claim the exemption under p. 81(1)(h) are met

21 November 2011 External T.I. 2011-0426481E5 F - Actions admissibles de petite entreprise

Unedited CRA Tags
110.6(1); 110.6(2.1); 110.6(14)f)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(14) - Paragraph 110.6(14)(f) - Subparagraph 110.6(14)(f)(ii) - Clause 110.6(14)(f)(ii)(A)
“substantially all” (meaning 90% or more) test satisfied even though only leasehold interest in real estate transferred

Principales Questions: Un contribuable exploite une entreprise activement et l'immeuble qui est utilisé dans cette entreprise est loué d'un tiers sans lien de dépendance. Le contribuable désire transférer tous les actifs de son entreprise - à l'exclusion de l'immeuble bien sûr - à sa société. Les actions qu'il recevra de la société se qualifieront-elles d'actions admissibles de petite entreprise?

Position Adoptée: Question de fait. En l'espèce oui.

Raisons: L'exigence "la totalité ou presque des éléments d'actif" se rapporte aux éléments d'actif qui appartiennent au contribuable et qui sont utilisés dans une entreprise exploitée activement.

17 November 2011 External T.I. 2011-0414811E5 F - Frais médicaux- fins esthétiques

Unedited CRA Tags
118.2(2.1); 118.2(2); 118.2(1)
Summary Under
Tax Topics - Income Tax Act - Section 118.2 - Subsection 118.2(2.1)
qualifying breast surgery expenses

Principales Questions: Les frais personnels payés en 2011 sont-ils admissibles aux fins du crédit d'impôt pour frais médicaux aux fins du paragraphe 118.2(1) de la LIR? Plus particulièrement, les frais personnels encourus dans le cadre de la chirurgie sont-ils pour corriger une malformation se rapportant à une anomalie congénitale?

Position Adoptée: Commentaires généraux.

Raisons: C'est une question de faits de déterminer si un service ou une procédure chirurgicale a été fourni purement à des fins esthétiques ou a été requis à des fins médicales ou restauratrices.

15 November 2011 External T.I. 2011-0415881E5 F - Pension alimentaire pour enfants

Unedited CRA Tags
60(b); 56.1 pension alimentaire pour enfants; 56(1)b)
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 18
taxpayer not entitled to deduct child support payments upon becoming a non-resident

Principales Questions: Le contribuable, résidant au Canada, peut-il déduire les montants payés à titre de pension alimentaire pour enfants à son ex-épouse qui est non-résidente?

Position Adoptée: Non. La pension alimentaire pour enfants payée par le contribuable ne peut être déduite dans le calcul de son revenu.

Raisons: Les mêmes dispositions s'appliquent que le bénéficiaire soit résident du Canada ou non. Le contribuable ne peut évoquer le paragraphe 18(XXXXXXXXXX) de la Convention pour réclamer une déduction dans le calcul de son revenu à titre de pension alimentaire pour enfants qui lui est refusée en vertu du droit canadien parce que ladite pension a été payée à son ex-épouse qui est sujette à imposition XXXXXXXXXX sur lesdits montants reçus.

27 October 2011 External T.I. 2011-0404241E5 - PDF - Deductibility of expenses

Unedited CRA Tags
ITA 56(1)(o), 56(1)(n), 5(1)

Principal Issues: Whether a post doctoral fellow (PDF) can apply a number of expenses, primarily travel, against the funding he received for a post doctoral fellowship.

Position: Question of fact.

Reasons: The deductibility of expenses depends on the nature of the income received and the type of expenses incurred by the PDF, which can only be determined on a case-by-case basis taking into account all of the relevant facts of the individual's situation.

5 December 2001 External T.I. 2011-0396821E5 - Commission or bonus paid?

Unedited CRA Tags
8(1)(f)

Principal Issues: Is a monthly payment to a sales manager a commission where the monthly amount is based on gross monthly sales profits of the department?

Position: No.

Reasons: The employees are sales managers and do not make the sales themselves. They receive a salary and an additional payment monthly based on a percentage of gross profits from the previous month's financial statement.

Conference

7 October 2011 Roundtable, 2011-0412121C6 F - Interaction between S. 84.1 and S. 85(2.1)

Unedited CRA Tags
84.1(1)(a), 85(2.1)
Summary Under
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(1)
s. 84.1 can "apply" and thereby prevail over s. 85(2.1) even where there is no s. 84.1 grind
Words and Phrases
apply
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(2.1)
s. 85(2.1) does not apply where s. 84.1(1) applies even if there is no grind under the s. 84.1(1)(a) formula

Principal Issues: Mr. A owns 100 common shares of the capital stock of a Canadian-controlled private corporation, Opco. These shares have a paid-up capital of $100,000 and an adjusted cost base of $100 for Mr. A. Mr. A incorporates a new Canadian-controlled private corporation, Gesco. Mr. A transfers the 100 common shares of the capital stock of Opco to Gesco in consideration for 100 common shares of the capital stock of Gesco, having a paid-up capital of $100,000. Mr. A and Gesco jointly elect to have the provisions of subsection 85(1) apply to the transfer. The agreed amount is $100. Whether subsection 85(2.1) applies to reduce the paid-up capital of the 100 common shares of the capital-stock of Gesco, where all the conditions set out in subsection 84.1(1) are satisfied but the amount determined by the formula as set out in paragraph 84.1(1)(a) is nil.

Position: No.

Reasons: According to the Law and previous positions.

8 October 2010 Roundtable, 2010-0373291C6 F - Tuck-Under Transactions - Safe Income Extractions

Unedited CRA Tags
84(2)
Summary Under
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4)
Vaillancourt-Tremblay did not validate all tuck-under transactions
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2)
CRA accepts use of tuck-under transactions to extract safe income
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c)
safe income can be extracted using tuck-under

Principales Questions: Whether the CRA maintains its long standing position that subsection 84(2) should not apply to "tuck under" transactions carried out in the context of "safe income extraction" scenarios.

Position Adoptée: Yes.

Raisons: Wording of the Act and previous positions.

Technical Interpretation - Internal

9 December 2011 Internal T.I. 2011-0399641I7 F - Bien agricole admissible et un lotissement

Unedited CRA Tags
110.61.3)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1.3) - Paragraph 110.6(1.3)(c) - Subparagraph 110.6(1.3)(c)(ii)
5-year “used principally” test was satisfied where a single lot was used 60% in farming
Summary Under
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a)
subdivision does not by itself convert capital property to inventory

Principales Questions: i) Si un fonds de terre qui est hérité par le contribuable avant le 18 juin 1987 et qui est composé d'un seul lot cadastré tel que 60% était utilisé par l'époux du contribuable dans le cadre de l'exploitation d'un entreprise agricole pour au moins 5 ans était un "bien agricole admissible"? ii) C'est quoi l'effet d'un lotissement du fonds de terre dans le but d'en vendre une parcelle?

Position Adoptée: i) Oui. ii) Question de faits.

Raisons: i) Les conditions énoncées à l'alinéa 110.6(1.3)c)i) sont satisfaites. ii) Voyez commentaires dans IT-218R.

24 November 2011 Internal T.I. 2011-0406611I7 - Employer Paid Legal Expenses

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether an employee's legal costs paid by an employer are taxable under the circumstances described.

Position: In this particular case no.

Reasons: Expenses were incurred by reason of employment and arose in part due to erroneous information being provided to the employee by the employer.

30 September 2011 Internal T.I. 2010-0387891I7 - Principal Residence

Unedited CRA Tags
54

Principal Issues: 1. Review of principal residence court cases

Position: 1. Facts and case law indicate the entire property was not necessary to the use and enjoyment of the housing unit as a principal residence.

Reasons: 1. Definition of principal residence.

27 June 2011 Internal T.I. 2011-0404771I7 - Clergy Residence Deduction

Unedited CRA Tags
8(1)(c)

Principal Issues: Whether a pastor (the "Taxpayer") who is in charge of a children's ministry, satisfies the function test of being 'in charge of or ministering to a diocese, parish or congregation' for the purpose of the clergy residence deduction pursuant to paragraph 8(1)(c) of the Act.

Position: Yes.

Reasons: The group of children attending the children's ministry is considered to be a congregation. The Taxpayer being a pastor for this ministry, is considered to be 'in charge of or ministering to' the congregation. Further, the children's ministry is considered a specialized ministry based on the explanation in paragraph 16 of IT-141R.