Income Tax Severed Letters - 2012-07-06

Principal Issues: 1. Is the principal residence deduction only available on the lower floor portion of the property up to XXXXXXXXXX?
2. Would the upper floor always be considered a taxable property, if the taxpayer disposed of the property in 2011?

Position: 1. Yes
2. Yes

Reasons: 1. The lower floor was ordinarily inhabited and used by the taxpayer as his/her principal residence up to XXXXXXXXXX.
2. The upper floor has never been inhabited by the taxpayer and always been used to earn rental income.

Principal Issues: Whether it is possible not to have subsection 73(3) of the Income Tax Act apply to an inter vivos transfer of farmland to children?

Principales Questions: (1) En droit civil québécois, dans un contexte où le ou les fiduciaires d'une fiducie entre vifs ont la faculté d’élire les bénéficiaires, dont une fiducie créée par testament, cette dernière, tant qu'elle n’est pas désignée en tant que bénéficiaire de la fiducie entre vifs, pourrait-elle perdre ou ne pas obtenir son statut de fiducie testamentaire?
(2) Dans le même contexte, une fiducie créée par testament peut-elle perdre ou ne pas obtenir son statut de fiducie testamentaire qu'au moment où elle reçoit des biens (actifs) de la fiducie entre vifs?

Position Adoptée: (1) Oui. Dès qu'une fiducie créée par testament a un droit de bénéficiaire dans une fiducie entre vifs, elle perd son statut de fiducie testamentaire.
(2) Non, même position qu'au point 1.

Raisons: 1. Lorsque la fiducie créée par testament obtient un droit de bénéficiaire de la fiducie entre vifs, nous serons d'avis qu'un bien (participation dans une fiducie entre vifs) lui aura été remis.
2. Mêmes raisons qu'au point 1.

Principal Issues: Whether a partnership can claim capital cost allowance on property in its last fiscal period where it subsequently continues as a sole proprietorship.

Position: Possibly.

Reasons: Interaction among subsections 98(1) and (5), and 99(1) of the Income Tax Act.

Principal Issues: Is a senior full time administrator at XXXXXXXXXX, eligible for the clergy residence deduction provided for in paragraph 8(1)(c) of the Income tax Act?

Position: May be.

Reasons: We do not have enough information to determine if the taxpayer satisfies the status and function tests to qualify for the clergy residence deduction pursuant to paragraph 8(1)(c) of the Act.

Principal Issues: Whether the costs incurred to install a walk-in bathtub and a high toilet qualify as a medical expense for purposes of the METC.

Position: General information provided.

Reasons: The requester did not provide sufficient information.

Principal Issues: Can the purchaser of a building that contains a geothermal heating and cooling system include the system in Class 43.2 of Schedule II?

Position: Likely yes.

Reasons: Position taken in 1998 "Class 43.1 Technical Guide and Technical Guide to Canadian Renewable and Conservation Expenses (CRCE)". Will depend on whether the system is used. If the system has been used then the purchaser must acquire the property within 5 years from the date the property became available for use to the vendor. XXXXXXXXXX

Principal Issues: Whether an amount paid by the taxpayer for cosmetic surgery qualifies as a medical expense for purposes of calculating the medical expense tax credit.

Position: Question of fact.

Reasons: An amount paid for a medical or dental service must not be excluded pursuant to subsection 118.2(2.1) of the Income Tax Act. It is a question of fact whether or not a medical or dental service is provided purely for cosmetic purposes and whether or not it is necessary for medical or reconstructive purposes.

Principal Issues: Whether the limited partnership losses of a partner in respect of a particular partnership can be claimed where the limited partner transferred his interest in the particular partnership to another partnership in return for an interest in that other partnership such that the income of the particular partnership now flows through the other partnership before being received by the limited partner.

Position: No.

Reasons: Subsection 102(2) applies for purposes of subsection 96(2.2) of the Act so that the other partnership would calculate an at-risk amount and would include the particular partnership's income in such calculation.

Principal Issues: Under the particular hypothetical situation, is it possible for the members of a particular partnership to make a multi-tier alignment election under subsection 249.1(9) so as to cause the first aligned fiscal period of each partnership in the tiered partnership structure to end on January 31, 2012?

Position: Yes

Reasons: The relevant provisions allow the multi-tier alignment election to be made for January 31, 2012 in this scenario.