Income Tax Severed Letters - 2012-02-17


2012 Ruling 2011-0397751R3 - Change in position re: allocation of bonus to HCSA

Unedited CRA Tags
6(1)(a); 56(2)

Principal Issues: The CRA is changing its administrative policy that allows an employee to redirect a portion of his or her bonus to obtain additional flex credits in a health care spending account on a tax free basis.

Position: On or after January 1, 2013, any bonus to which an employee is or will become entitled will be included in income in the year in which the amount is converted to flex credits.

Reasons: The allocation of a bonus to obtain additional flex credits in a HCSA is an allocation of forgone cash remuneration and should be subject to tax.

2011 Ruling 2010-0389921R3 - New series of units - US dollar and Hedged

Unedited CRA Tags
104(7.1), 248(1)

Principal Issues: Whether the issuance of new classes of US dollar units and hedged units of a mutual fund trust would result in (1) a disposition by the existing unitholders of their units, (2) a disposition by the Fund of its assets, (3) the application of 104(7.1).

Position: (1) no (2) no (3) no

Reasons: (1) No cash consideration or other proceeds of disposition will be received by the existing unitholders - moreover the changes to issue a new series is not viewed as sufficiently material to take the view that the units after the issuance are 'new' units. (2) The changes to issue a new series of units are not so extensive so as to result in a resettlement of the fund and it is submitted that there will be no legal resettlement as a matter of provincial law. (3) Consistent with previous rulings given, especially in light of the uncertainty of foreign exchange fluctuations.

2010 Ruling 2010-0376531R3 - Plan with DSUs and 3-year bonus deferral PSUs

Unedited CRA Tags
6801(d), 248(1)(k)

Principal Issues: Will a plan that includes both a deferred share unit component and a separate 3-year bonus component be considered a salary deferral arrangement?

Position: No.

Reasons: The DSU portion of the plan satisfies paragraph 6801(d) of the Income Tax Regulations. The PSU portion of the plan satisfies the exception in paragraph (k) of the definition "salary deferral arrangement".

2010 Ruling 2008-0287641R3 - Deferred Stock Unit Plan

Unedited CRA Tags
248(1) "salary deferral arrangement"

Principal Issues: Will proposed amendments to an existing deferred stock unit plan to add a new class of units based on XXXXXXXXXX shares that track a limited partnership investment fund, result in the plan ceasing to satisfy the conditions in ITR 6801(d)?

Position: The amendment will not, in and of itself, affect the plan for purposes of the conditions in ITR 6801(d).

Reasons: The XXXXXXXXXX shares fall within the parameters of ITR 6801(d) and, in particular, the post-amble to the Regulation. The Plan provides, and the taxpayer's representative has confirmed, that no action may be taken to reduce the impact of any downward fluctuation in the fair market value of the XXXXXXXXXX shares or of the fund itself.

Technical Interpretation - External

13 February 2012 External T.I. 2011-0419811E5 - ELHT - Bankrupt employer

Unedited CRA Tags

Principal Issues: Does an ELHT lose its status as an ELHT when the employer becomes bankrupt

Position: no

Reasons: A trust will be considered to be an ELHT for a taxation year, where throughout the year, the terms that govern the trust meet the requirements of paragraphs 144.1(2)(a) to (i). The trust and employer are separate legal entities. The trust would eventually be dissolved and its assets distributed to the beneficiaries.

9 February 2012 External T.I. 2008-0280941E5 F - Foreign sourced income - transportation

Unedited CRA Tags
4, 125, 126(2)
s. 4(1)(b) generally applied on a jurisdictional basis
incidental business activities in jurisdiction may not constitute carrying on business there
s. 4(1)(b) applied for s. 126(9) purposes
NY franchise tax qualified as an income tax only if it was not based on non-income specified minimums

Principal Issues: 1) For the purpose of a foreign tax credit claim under subsection 126(2) in respect of the State of New York tax paid by a corporation, how should "qualifying incomes" and "qualifying losses", as defined per subsection 126(7), be determined for the application of paragraph 126(2)(b)?
2) For the purpose of a small business deduction claim under section 125, how the corporation's income for a year from an active business carried on in Canada should be determined?

Position: General comments, question of fact.

Reasons: Application of paragraph 4(1)(b).

8 February 2012 External T.I. 2011-0425411E5 - Change in fiscal period & transitional reserve

Unedited CRA Tags
34.2(1), 34.2(2), (4),(11), (12)

Principal Issues: (1) Periods upon which ASPA is computed under paragraph (a) of the definition of ASPA. (2) Transitional reserve deduction under paragraph 34.2(11)(a) where a corporation has a change in fiscal periods.

Position: Comments provided for items "A", "C" and "D" in paragraph (a) of the definition of ASPA. (2) The transitional reserve is calculated based the defined specified percentage stipulated for the particular year in which the taxation year of the corporation ends.

Reasons: Definition of ASPA and specified percentage in subsection 34.2(1).

8 February 2012 External T.I. 2011-0422901E5 - Parking Expenses

Principal Issues: Whether the parking provided by the employer would be a taxable benefit to the employee. Does the situation described meet the definition of "scramble parking"?

Position: General comments provided.

Reasons: A question of fact on a case-by-case basis whether the primary beneficiary is an employer or an employee.

7 February 2012 External T.I. 2011-0430431E5 - Renewable Energy Property

Unedited CRA Tags
Class 43.1 and 43.2 of Schedule II

Principal Issues: Whether the ground source heating and cooling system described is included in Class 43.2 / 43.1 of Schedule II of the Regulations.

Position: Question of fact, but it appears that parts of the system will qualify for inclusion in Class 43.2 / 43.1.

Reasons: 43.1(d)(i)(A)(II)

6 February 2012 External T.I. 2011-0431921E5 - Volunteer Firefighter Tax

Unedited CRA Tags

Principal Issues: 1. Types of activities which could qualify as eligible volunteer firefighter services.

Position: 1. Question of fact but could qualify.

Reasons: 1. The Legislation

6 February 2012 External T.I. 2011-0415231E5 - Principal residence and specified beneficiaries

Unedited CRA Tags
54, 104(13), 104(21)

Principal Issues: 1. Can a personal trust with multiple beneficiaries who are all beneficially interested in the trust, make a designation of a housing unit as a principal residence, where at least one, but not all beneficiaries, ordinarily inhabits the housing unit?
2. Can one of the beneficiaries of the trust who does not ordinarily inhabit the housing unit described in 1, designate another property as his/her principal residence?
3. Where a personal trust disposes of a property it owns, and designates the property as a principal residence, does the trust or the specified beneficiary declare the capital gain?
4. Does the same position as in 3. apply in respect to deemed dispositions under the 21 year rule?

1. Generally yes, provided no beneficiary that ordinarily inhabits the housing unit, nor any member of his/her extended family has designated another property as a principal residence.
2. Generally yes, provided the beneficiary owns the property, unless the beneficiary is a member of any specified beneficiary's extended family.
3. The trust, which owns the property, would generally declare the capital gain from the disposition (as reduced by any principal residence deduction), unless the capital gain was paid out to a beneficiary.
4. Yes

Reasons: 1. Definition of "principal residence" under section 54, in particular subparagraphs 54(c.1)(ii) and (iv).
2. Same as 1. also paragraph 54(f).
3. Same as 1, also subsections 104(13) and 104(21)
4. Subsections 104(4), 104(13) and 104(21)

6 February 2012 External T.I. 2012-0434501E5 - subsection 55(2)

Unedited CRA Tags
55(2), 55(5)f), 245(2)

Principales Questions: Whether CRA's position described in document F 2011-0412091C6 would also apply with respect to a deemed dividend under subsection 84(3).

Position Adoptée: Yes.

Raisons: Wording of the Act and previous positions.

3 February 2012 External T.I. 2011-0418671E5 - Parking Expenses

Unedited CRA Tags
8(10), 8(1)(h), 8(1)(h.1)

Principal Issues: Is a parking expense at a worksite a deductible employment expense if (1) an employee is required to provide his or her own tools for employment purposes, (2) due to the magnitude of the tools required to perform the work the employee must use his or her vehicle to transport the tools to the worksite, and (3) the tools cannot be left at that worksite and must be transported back and forth with the employee?

Position: Not by itself - all the requirements for the deductibility of employee travel expenses must still be met. It is always a question of fact in each particular case whether those requirements are met.

Reasons: A deduction for motor vehicle expenses incurred by an employee in the course of performing the duties of employment is permitted where the individual is required to carry on those duties away from the employer's place of business or in different places and the employee is responsible for such expenses. The fact that the tools cannot be left at the worksite may suggest that the employer does not have a "place of business" at a particular location but this can only be determined on a case by case basis through a review of all relevant facts in each situation.

1 February 2012 External T.I. 2011-0431571E5 - Canadian resource royalty received by US resident

Unedited CRA Tags
212(1)(d), Can-US treaty Art XII, Can-US treaty Art VI

Principal Issues: What is the correct amount of Canadian withholding tax on oil royalty payments made from a Canadian company to a resident of the US.

Position: 25%

Reasons: Resource royalties do not meet the definition of royalties under paragraph XII(4) of the treaty and therefore are not eligible for reduced rate of withholdings under paragraph XII(2). Canada's right to tax is provided under Article VI

6 December 2011 External T.I. 2011-0405561E5 - Withholding on payment to non-resident

Unedited CRA Tags
ITA 2(3), 115, 153(1)(g), 153(1.1), 227(8), Regulation 105(1); Article XVI of the Canada- United States Tax Convention (1980 )

Principal Issues: Whether tax is required to be withheld on deposits paid to non-resident artist's agents. Where an overpayment occurs, how is a refund obtained?

Position: General comments. Yes. Any refund is obtained following an assessment of the non-resident's Canadian income tax return.

Reasons: Regulation 105 withholding is a payment on account of the non-resident's potential Part I tax. The onus is on the non-resident to file a return and demonstrate to the CRA that a refund is justified.

6 February 2011 External T.I. 2011-0427211E5 - Recovery of Departure tax

Unedited CRA Tags
126(2.21), 128.1(4)(b), 220(4.5)

Principal Issues: Can a taxpayer reduce their Departure tax in respect of shares of a corporation by the 15% Canadian withholding tax applied on a subsequent wind-up of that corporation through the use of subsection 126(2.21)?

Position: No.

Reasons: Section 126(2.21) can only be applied in respect of foreign taxes.

Technical Interpretation - Internal

8 February 2012 Internal T.I. 2011-0431581I7 F - Sous-alinéa 6(1)a)(vi) proposé

Unedited CRA Tags
Sous-alinéa 6(1)a)(vi) proposé par les Propositions législatives relatives à l'impôt sur le revenu et aux taxes de vente et d'accise du 31 octobre 2011
taxpayers can file based on proposed legislation and wait until announcement that it will not be implemented
no penalties if taxpayer promptly refiles after announcement that favourable amendment will not proceed
“studies” are at all levels and bursaries and tuition reimbursements potentially are included

Principales Questions: Sommairement, est-ce qu'en vertu du sous-alinéa 6(1)a)(vi) proposé, un avantage accordé dans le cadre d'un programme offert par un employeur le ou après le 31 octobre 2011 relativement à la poursuite des études d'un particulier autre qu'un de ses employés sera considéré une bourse d'études pour ce particulier en question, que cet avantage se rapporte à des études primaires, secondaires ou postsecondaires?

Position Adoptée: Oui.

Raisons: Analyse de la disposition proposée.