Income Tax Severed Letters - 2012-02-03

Principal Issues: Whether CRA has authority to waive taxes imposed under sections 207.04 or 207.05 in respect of RRSP or RRIF prohibited investments and advantages. If so, what are the procedures for requesting a waiver?

Position: 1. Yes. 2. Outlined waiver procedures established by CRA Assessment and Benefit Services Branch.

Reasons: 1. Subsection 207.06(2) of the Act gives the Minister of National Revenue authority to cancel or waive all or part of the taxes on prohibited investments and advantages in appropriate circumstances, taking into account factors such as reasonable error and whether the transaction or series of transactions that gave rise to the tax also resulted in another tax being payable under the Act. In the case of a waiver of the advantage tax, subsection 207.06(3) requires that the annuitant withdraw an amount from their RRSP or RRIF without delay equal to the amount of the tax being waived. 2. Application of administrative policy.

Principal Issues: Whether an amount paid by the taxpayer for a rehabilitive splinting system to stretch the tissue in the elbow would qualify as a medical expense for purposes of calculating the medical expense tax credit.

Position: Likely yes.

Reasons: Paragraph 118.2(2)(i) of the Income Tax Act applies to different devices, including a brace for a limb.

Principal Issues: Whether an amount paid by the taxpayer for dental applicance designed to treat sleep apnea would qualify as a medical expense for purposes of calculating the medical expense tax credit.

Position: It is a question of fact based on the determination of whether the patient is suffering from a "severe chronic respiratory ailment" and whether the dental applicance was "designed exclusively for use by" such a patient for that ailment.

Reasons: The law.

Principal Issues: Whether amounts paid for: 1) a Polar Care Cube, a motorized cold therapy device, prescribed by a doctor to control and reduce knee pain and swelling and 2) an electrical muscle stimulation (EMS) device used for muscle stimulation and strengthening after a knee injury, qualify as medical expenses for purposes of the medical expenses tax credit (METC).

Position: 1) No. 2) Yes.

Reasons: 1) Cold therapy devices are not provided for under subsection 118.2(2) of the Act or section 5700 of the Regulations. 2) An EMS device appears to be a form of electrotherapy device that meets the conditions described under paragraph 5700(z.2) of the Regulations.

Principal Issues: Whether certain expenditures incurred to construct road ramps, roadways and other road related improvement could be treated as Class 17 depreciable assets on the basis that the requirements of paragraph 13(7.5)(b) have been satisfied.

Position: Question of fact. General comments only.

Reasons: See above.

Principal Issues: Whether the costs incurred to replace carpet in a dwelling with hardwood flooring, based on a recommendation from a medical doctor in the case of a patient with severe asthma, qualify as a medical expense for purposes of the METC.

Position: No.

Reasons: Hardwood flooring is a type of home alteration that would typically be expected to increase the value of the dwelling, and it would normally be incurred by persons who have normal physical development or who do not have a severe and prolonged mobility impairment.

Principal Issues: Whether the cost of a seamless T-shirt to be worn under a thoraco-lumbo-sacral orthosis (TLSO) would qualify as a medical expense under the medical expense tax credit (METC).

Position: No.

Reasons: An amount paid for a seamless T-shirt is not considered to be paid "in respect of" a spinal brace, since a seamless T-shirt is not a requirement.

Principal Issues: Does the 2011 federal budget effectively prohibit all swap transactions in RRSPs and RRIFs?

Position: Yes, subject to limited exceptions.

Reasons: The amendments in Bill C-13 (which received royal assent on December 15, 2011) extend the existing TFSA rules for swap transactions in Part XI.01 of the Act to RRSPs and RRIFs. These rules eliminate all current and future benefits associated with swap transactions, regardless of whether the transaction occurs at fair market value. This serves, in effect, as a prohibition on swap transactions. Position is consistent with statement in Department of Finance News Release dated October 16, 2009, which first introduced prohibition on swap transactions for TFSAs.

Principal Issues: Whether a row house or similar type of unit is categorized as an Apartment/Duplex or House/Trailer for the purpose of the CRA publication RC4054. (2) Would a two unit or three unit dwelling fall into apartment/duplex category as opposed to the house/trailer category?

Position: (1) House/trailer category includes a row house. (2) Apartment/duplex category includes a triplex.

Reasons: Previous interpretation

Principal Issues: Can a lump sum payment made on behalf of a Canadian resident from a Philippine pension plan in respect of non-resident services be transferred to an RRSP under subparagraph 60(j)(i) of the Act?

Position: Yes, provided the taxpayer does not claim a deduction under subparagraph 110(1)(f)(i) for the treaty-exempt income.

Reasons: Satisfies the conditions in subparagraph 60(j)(i). In particular and in contrast to other provisions of the Act that preclude their application where the amount "is deductible" or "may be deducted" under another provision, subparagraph 60(j)(i) only precludes its application where the amount "is deducted". The subparagraph 110(1)(f)(i) deduction is a permissive deduction.

Principal Issues: Are amounts paid from an unfunded supplemental pension plan eligible for pension income splitting?

Position: In general, no.

Reasons: Definition of "eligible pension income" in section 60.03 and subsection 118(7) and the amounts specifically excluded from the definition by virtue of subsection 118(8). Paragraph 118(f) specifically excludes amounts paid out of an unfunded supplemental plan.