Income Tax Severed Letters - 2013-01-09

Ruling

2012 Ruling 2012-0458361R3 - Cross-Border Financing

CRA Tags
Treaties Article XI(1), Treaties Article IV(6), Treaties Article XXIX-A(3), ITA: 20(1)(c)

Summary under Treaties - Art. 4 and Treaties - Art. 29A.

Principal Issues: 1. Will Article IV(6) of the Treaty apply to any interest paid to a U.S. LLC in respect of the income from the new cross-border debt?
2. Will Article XXIX-A(3) of the Treaty apply?
3. Will Article XI(1) of the Treaty apply to reduce the Canadian withholding tax rate to nil for any interest deemed paid on the new cross-border debt?
4. Will the interest payable on the new cross-border debts be deductible pursuant to 20(1)(c) of the Act?

Position: 1. Yes
2. Yes
3. Yes
4. Yes

Reasons: 1. The criteria in Article IV(6) have been met.
2. The criteria in Article XXIX-A(3) have been met.
3. The criteria in Article XI(1) have been met.
4. The borrowed money is used for the purpose of earning income from a business.

2012 Ruling 2012-0461881R3 - Supplemental Ruling

CRA Tags
55(3)(b)

Principal Issues: Amendments to facts and proposed transactions brought to our attention. New facts with respect to the assets and liabilities of DC added for the purpose of obtaining greater certainty.

Position: Confirmation that, subject to the conditions, limitations, qualifications, and comments set out therein, the original Ruling no. 2012-043938 will continue to be binding on the CRA.

Reasons: In compliance with the law.

Ministerial Correspondence

7 November 2012 Ministerial Correspondence 2012-0461011M4 - Support Payments - Arrears Collection

CRA Tags
56.1(4)

Principal Issues: 1. Is an arrears collection in respect of pre-May 1997 child support taxable?

Position: 1. Yes.

Reasons: 1. Collection of an amount by a provincial maintenance enforcement office did not result in a new commencement date.

16 October 2012 Ministerial Correspondence 2012-0460111M4 - Olympic Performance Awards

CRA Tags
143.1, 56(1)(n)

Principal Issues: 1. Are performance awards received by Olympic athletes taxable?

Position: 1. Yes

Reasons: 1. 56(1)(n) applies to prizes for achievement in a field of endeavour. Performance awards do not qualify as prescribed prizes.

18 September 2012 Ministerial Correspondence 2012-0458181M4 - Olympic Performance Awards

CRA Tags
143.1, 56(1)(n)

Principal Issues: 1. Are performance awards received by Olympic athletes taxable?

Position: 1. Yes.

Reasons: 1. 56(1)(n) applies to prizes for achievement in a field of endeavour. Performance awards do not qualify as prescribed prizes.

Technical Interpretation - External

15 November 2012 External T.I. 2012-0436061E5 - Is the self-administered HCSA a PHSP?

CRA Tags
6(1)(a), 248(1)

Principal Issues: Does the proposed self-administered health care spending account qualify as a private health services plan in order that the premiums paid by the employer are not a taxable benefit to the employee?

Position: Question of fact, but likely yes.

Reasons: The HCSA appears to meet the criteria of a PHSP as outlined in IT-339R2.

14 November 2012 External T.I. 2012-0439101E5 - Child care expense deduction

CRA Tags
63(3), 63(1), 63(2)

Principal Issues: 1. Whether a taxpayer can claim his/her children’s pre-school fees as deductible child care expenses provided under section 63 of the Act.

2. Whether a taxpayer’s physical presence at a designated educational institution is required to qualify for the deduction of child care expenses incurred under paragraph 63(3)(a)(v) of the Act.

Position: 1. Yes, unless it is clear that pre-school fees were paid in respect of a program of education.

2. Unlikely. The phrase “to attend” employed in subparagraph 63(3)(a)(v) of the Act, in and of itself, does not require a physical presence at an educational institution.

Reasons: 1. Such fees for a pre-school child are similar to fees paid for day nursery services, unless it is clear that pre-school fees were paid in respect of a program of education.

2. Case law definition of the word “attend”.

9 November 2012 External T.I. 2012-0435521E5 - Employee's office rent expense

CRA Tags
8(2), 8(1)(i)(ii)

Principal Issues: Can an employee deduct office rent from income where the office is located outside their home?

Position: Yes

Reasons: Amounts paid to rent an office that is required under the contract of employment are deductible from income under subparagraph 8(1)(i)(ii).

6 November 2012 External T.I. 2012-0443291E5 - Exemption of Indian's Employment Income

CRA Tags
81(1)(a)

Principal Issues: Whether the employment income of XXXXXXXXXX who perform some of the duties of employment on a reserve is exempt from income tax under Guideline 3 or 4.

Position: Guideline 3 exempts the income of the Indian employees resident on the reserve, provided 50% or more of duties of employment are performed on reserves. Partial exemption under Guideline 1 for the employment duties that are performed on a reserve and the Indian does not live on a reserve.

Reasons: Since the employer is not located on a reserve and it is not an Indian band or tribal council or Indian organization, income will be exempt under Guideline 3 where the Indian lives on a reserve and more than 50% of the duties are performed on a reserve. Otherwise partial exemption for duties performed on the reserve.

6 November 2012 External T.I. 2012-0446601E5 - Moving expenses

CRA Tags
248(1), ITA 62(1)

Principal Issues: Whether the taxpayer's move from City A to City B while still employed at City A and subsequent employment from his/her home in City B, is an "eligible relocation" for purposes of claiming moving expenses.

Position: Likely not.

Reasons: To be an eligible relocation, the move must have enabled the taxpayer to be employed at or in the new location. It is questionable whether the move enabled the taxpayer to be employed at his/her home.

5 November 2012 External T.I. 2012-0458801E5 F - Frais de déménagement

CRA Tags
6(2), 248(1) «réinstallation admissible»
move can relate to an existing workplace if there is a causal link

Principales Questions: Est-ce que l’ARC est d’avis qu’il doit y avoir un « nouveau lieu de travail » pour qu'une réinstallation puisse se qualifier de réinstallation admissible?

Position Adoptée: Non. Il doit toutefois y avoir un lien causal entre la réinstallation d’un contribuable et le fait qu’elle soit effectuée afin de lui permettre notamment d’occuper un emploi à un endroit au Canada.

Raisons: Le libellé de la loi.

5 November 2012 External T.I. 2012-0445241E5 F - 54 et 40(2)b)

CRA Tags
54, 40(2)(b)
whether a duplex is a single housing unit turns on the degree of independence v. integration of the two units

Principales Questions: Est-ce qu’un duplex pourrait être considéré comme un seul « logement » pour les fins de l’article 54 et de l’alinéa 40(2)b) dans un contexte particulier?

Position Adoptée: Commentaires généraux

Raisons: Question de fait

2 November 2012 External T.I. 2012-0467961E5 - receipt of a break fee

CRA Tags
12(1)(x), 9(1)

Principal Issues: clarification of comments in CRA document

Position: break fee may also be included in income under subsection 9(1) or paragraph 12(1)(x)

Reasons: see document 2010-0366321I7

25 October 2012 External T.I. 2012-0434941E5 - scholarship and non-resident student

CRA Tags
115, 56(3), 18(1)(a), 67, 56(1)(n)

Principal Issues: What are the proper income tax treatment and reporting requirements for scholarships or bursaries paid by an employer in Canada to an employee's children that are citizens of the United States? Is there any limit to the amount of the scholarship that can be paid to an employee's children?

Position: It depends on the facts.

Reasons: The legislation.

25 October 2012 External T.I. 2012-0453841E5 - Ex. membship fees refunded in year to memb. of NPO

CRA Tags
149(1)(l)

Principal Issues: Whether the refund of excess membership fees in the year by a NPO to its members results in the NPO losing its status.

Position: Dependant on facts and scope of fundraising activities.

Reasons: Question of fact.

24 October 2012 External T.I. 2012-0440251E5 - Moving Expenses - Students

CRA Tags
248(1), 62(1)

Principal Issues: Are moving expenses deductible by students in full-time attendance at a post-secondary school when they move home for summer employment?

Position: Yes

Reasons: The move qualifies as an “eligible relocation” defined in subsection 248(1) of the Act.

16 October 2012 External T.I. 2011-0425271E5 F - Small CCPC

CRA Tags
157(1.2), 157(1.3)
carryback of losses can produce small CCPC ("SCCPC") status (quarterly instalments) but not reduce instalment base
Amalco’s instalments based on tax payable of predecessors
1st instalment base of transferor taken into account by transferee

Principal Issues: 1. Whether the “taxable income” and the “taxable capital employed in Canada” of corporations for the taxation year that ended immediately before the taxation year in which they amalgamated can be taken into account under paragraphs 157(1.3)(b) and 157(1.4)(b) in determining whether the amalgamated entity qualifies as a small-CCPC for the particular taxation year? 2. Whether the “taxable income” and the “taxable capital employed in Canada” of a parent corporation and its wholly-owned subsidiary for the taxation year that ended immediately before the taxation year in which they wound-up can be taken into account under paragraphs 157(1.3)(b) and 157(1.4)(b) in determining whether the parent corporation qualifies as a small-CCPC for the particular taxation year? 3. Whether a carry back of a NCL to the preceding taxation year can be taken into account under paragraph 157(1.2)(a) in determining whether the corporation qualifies as a small-CCPC for the particular taxation year?

Position: 1. No. 2. Yes. The taxable income and the taxable capital employed in Canada of the parent corporation and its wholly-owned subsidiary for the taxation year that ended immediately before the taxation year in which they wound-up taxation must be taken into account pursuant to paragraphs 157(1.3)(b) and 157(1.4)(b). 3. Yes

Reasons: 1. The amalgamated entity is deemed to be a new corporation, and the predecessor corporations are deemed to have ceased to exist further to their amalgamation pursuant to paragraph 87(2)(a). 2. The parent corporation remained in existence after the wind-up. The parent corporation was associated with its wholly-owned subsidiary for the taxation year that ended immediately before the taxation year in which they wound-up. 3. Application of the Act.

10 October 2012 External T.I. 2011-0427801E5 - ownership of property - principal residence

CRA Tags
54

Principal Issues: Will a son's parents be considered to be the owner of their son's house?

Position: It depends on the facts, but in this case no.

Reasons: The parents do not appear to have beneficial ownership of the house; they only have legal title to the house.

5 October 2012 External T.I. 2011-0427891E5 - Summer Undergraduate Research Program

CRA Tags
international tax conventions, 150(1.1), 115(1), 115(2), 5(1), 237(1.1), 2(3), 250, 56(1)(o), 56(1)(n), ITR 200(2)

Principal Issues: Taxability of proposed payments to be made by a Canadian university to international undergraduate students participating in a summer undergraduate research program.

Position: The international students would generally be considered to be non-residents of Canada, whom are not in full time attendance at a Canadian university. The amounts received by the students in this case would be classified as scholarships, bursaries or research grants rather than as employment income, and would not be taxable under the ITA.

Reasons: The international students are present in Canada for only three months in the summer, before returning to their home universities in the foreign countries in which they ordinarily reside, and would therefore generally be considered to be non-residents of Canada. As non-residents, the students are taxable on "taxable income earned in Canada" under subsection 2(3), which under subsections 115(1) and (2) includes: employment income earned in Canada; as well as scholarships, bursaries and research grants received from a Canadian source providing the student is in full time attendance at a Canadian post-secondary institution. The students are not full time students of the Canadian university in this case. The primary purpose behind the proposed voluntary payments is to encourage exceptional students to participate in the summer research program, not only those with the means to do so. The primary objective of the students is to acquire new knowledge and to obtain expertise in their field by acting as research assistants, as opposed to a primary motivation of financial gain that would be present under an employer-employee relationship. The amounts received by the students would therefore be considered to be scholarships, bursaries or research grants as opposed to employment income. Since the students are non-residents of Canada and are not in full time attendance at a Canadian post-secondary institution, the amounts are not taxed under the ITA.

5 October 2012 External T.I. 2012-0437811E5 - Tuition Tax Credit – US Institution

CRA Tags
118.5(b)

Principal Issues: Does a certificate course from a US educational institution qualify for the Tuition Tax Credit?

Position: Depends.

Reasons: General comments provided as limited information provided to give an exact position.

5 October 2012 External T.I. 2011-0401071E5 - Principal Residence Exemption

CRA Tags
54, 40(2)(b)

Principal Issues: Whether a property qualifies for the principal residence exemption in a particular case.

Position: Question of fact.

Reasons: No evidence that the land in excess of half a hectare was essential. The cottage was ordinarily inhabited as the principal residence while completing the construction on the house prior to selling the property.

5 October 2012 External T.I. 2012-0434951E5 - Volunteer Firefighters Tax Credit

CRA Tags
118.06

Principal Issues: How does a certification be completed where there is no fire chief?

Position: A written certification from a fire chief or delegated official within the fire department may be requested by the CRA to verify claims for the VFTC.

Reasons: It is clearly indicated that, at the request of the Minister of National Revenue, the fire chief or delegated official [municipality or public authority has to certify in writing that a given individual provided eligible volunteer firefighting services for the year, attesting to the number of hours of eligible volunteer firefighting services performed in the year by the individual for the particular fire department according to subsection 118.06(3).

27 July 2012 External T.I. 2011-0422661E5 - Extended health care plan payments

CRA Tags
6(1)(a), 153(1)(g), 248(1), ITR 200(2)

Principal Issues: 1. Does an Extended Health Plan (“EHP”) qualify as a Private Health Services Plan (“PHSP”)? 2. Is a payment made by a union to a member under an EHP taxable if the member’s employer made the contributions into the EHP? 3. Is a T4A required to be issued when a payment under an EHP is less than $500?

Position: 1. Question of Fact. 2. Yes. 3. No.

Reasons: 1. The definition of a PHSP in subsection 248(1) of the Act requires the plan to be a plan in the nature of insurance and reimbursements have to be in respect of expenses that would otherwise qualify for the medical expense tax credit under 118.2(2).
2. Payments made by a union to a member under an EHP where contributions were made into the plan by the member’s employer are subject to income tax under paragraph 6(1)(a) of the Act if the plan is not a PHSP. 3. CRA Guide RC4157 notes that no T4A is required on a payment if the amount paid to an individual is less than $500 and no income tax has been.

25 July 2012 External T.I. 2011-0427221E5 - FBAR penalties

CRA Tags
Treaties Article II, Treaties Article XXVI-A

Summary under Treaties - Article 26A.

Principal Issues: Whether US FBAR penalties are included in "revenue claims" defined in Art.XXVI-A(1) of the Canada-US Treaty.

Position: No.

Reasons: FBAR penalties are not civil penalties in respect of taxes covered under Art.II of the Treaty.

Conference

18 May 2012 IFA Roundtable, 2012-0444101C6 - non-resident withholding - services

CRA Tags
150, ITR 105
partnership can apply for Treaty-based waiver

Principal Issues: Whether every partner of partnership that has had Regulation 105 withholdings in respect of fees for services rendered in Canada must file a return to obtain a refund.

Position: Yes – but could obtain waiver of Reg 105 withholding in certain circumstances.

Reasons: Legislation

17 May 2012 IFA Roundtable, 2012-0444081C6 - 2012 IFA Seminar - Question 4

CRA Tags
116

Principal Issues: Partnership obtaining a section 116 clearance certificate.

Position: General comments provided.

Reasons: See document.

17 May 2012 IFA Roundtable Q. 2, 2012-0444051C6 - 2012 IFA Seminar - Q.2 Reduced Tax Withholdings

Principal Issues: Treaty-reduced tax withholdings, taxpayer relief for under-withholding, and refunds of Part XIII tax withheld.

Position: General comments provided.

Reasons: See response.

Technical Interpretation - Internal

14 November 2012 Internal T.I. 2012-0445391I7 - tuition tax credit

CRA Tags
118.5

Principal Issues: Do tuition fees paid to an entity that is registered as a private career college under the Ontario Private Career Colleges Act, 2005 (PCCA )qualify for the tuition tax credit (TTC) under subparagraph 118.5(1)(a)(i) of the Income Tax Act?

Position: The tuition fees paid by a student to a private career college that is registered under the PCCA in respect of a vocational program that is approved by the Superintendent should be allowed under subparagraph 118.5(1)(a)(i) of the Income Tax Act providing all other requirements for the TTC have been met.

Reasons: A private career college registered under the PCCA is an educational institution. A vocational program that a particular private career college has been approved for by the Superintendent is at a post-secondary level.

5 November 2012 Internal T.I. 2012-0462151I7 - Foreign Tax Credits

CRA Tags
142.5(2), 126, 142.2(1)

Summary under s. 126(6)(c).

Principal Issues: Whether the deemed disposition of mark-to-market securities gives rise to qualifying income or qualifying losses for the purposes of computing foreign tax credits under section 126 of the Act in respect of foreign withholding tax on dividends from those securities.

Position: No

Reasons: The gains or losses on the deemed disposition of mark-to-market securities will, pursuant to paragraph 126(6)(c), result in tax-exempt income from a separate source that is not qualifying income or qualifying losses for the computation of foreign tax credits. As a result, the qualifying income, being the dividends net of related expenses, will not be affected by any mark-to-market gains or losses.

30 October 2012 Internal T.I. 2012-0457941I7 F - Indemnité de départ

CRA Tags
110.2
an award in settlement of severance pay did not relate back to the years in which it accrued

Principales Questions: Est-ce que le paiement d’une indemnité de départ dans un contexte particulier pourrait bénéficier des règles d’étalement des paiements forfaitaires prévues à l’article 110.2 et si oui, comment déterminer le montant qui s’applique à chaque année antérieure?

Position Adoptée: Dans la situation soumise, le montant pourrait être considéré comme un « montant admissible » au sens du paragraphe 110.2(1), mais aucune partie de ce montant ne pourrait se qualifier de « partie déterminée » au sens du paragraphe 110.2(1). Par conséquent, aucune partie de ce montant ne pourrait être désignée à titre de paiement forfaitaire rétroactif admissible par le payeur sur le formulaire T1198.

Raisons: Nous sommes d’avis qu’un particulier qui a demandé le paiement de son indemnité de départ accumulée pour les années antérieures n’était pas en droit de recevoir ce montant au cours des années d’imposition antérieures à l’année où la sentence arbitrale a été rendue.

20 September 2012 Internal T.I. 2012-0454821I7 - 163(2) Penalty with respect to the CCTB and GSTC

CRA Tags
160.1(1), 122.6, 122.5, 122.61, 163(2)

Principal Issues: Whether both spouses, who are cohabiting spouses, are liable to a gross negligence penalty under 163(2) of the Act with respect to the overpayment of the Canada Child Tax Benefit and the Goods and Services Tax Credit, where both spouses have unreported income or unsupported losses which are also subject to the 163(2) penalty.

Position: Yes.

Reasons: Wording of 163(2)(c) and 163(2)(c.1)

7 September 2012 Internal T.I. 2012-0434341I7 - Taxable benefit chauffeur of employer-provided car

CRA Tags
6(1)(a), 6(1)(k), 6(1)(e)

Principal Issues: Is there a taxable benefit to the driver of an executive's employer-provided automobile, in various situations where the driver takes the car home at night?

Position: Question of fact

Reasons: Where the time and location of the first pick-up and last drop-off varies daily, a car would not be considered to have been made available to the driver and no taxable benefit would exist. However, if the driver picked up the executive at his residence every morning and returned there in the evening, proceeding home with the employer-provided automobile, then the executive's residence would be considered to be a regular place of employment to the driver. Any travel between the driver's home and the executive's residence would be personal and a taxable benefit would accrue to the driver.

6 September 2012 Internal T.I. 2012-0452151I7 - S. 163(2) Penalty on Fictitious Business Losses

CRA Tags
163(2), (2.1)

Principal Issues: How to calculate the gross negligence penalty on fictitious business losses?

Position: 1. Calculate the revised taxable income by adding the amount attributable to the false statement to the reported taxable income.
2. Calculate the tax on the revised taxable income, taking into consideration all applicable deductions, such as non-refundable credits, and any amount that is wholly attributable to the amount of income understated.
3.Calculate the tax on the reported taxable income.
4. Determine the penalty, which would be equal to the greater of $100 and fifty percent of the excess of the tax calculated in #2 over the tax calculated in #3.

Reasons: S. 163(2) and (2.1).

10 August 2012 Internal T.I. 2012-0441821I7 - Government Service Contract Payments

CRA Tags
ITR 237, Section 16 Treasury Board of Canada Secretariat - Contracting Policy

Principal Issues: Are certain general ledger (GL) accounts that contain payments for tuition, rent of real property, property taxes, passports, permits, certificates, and licences exempt from the reporting requirements found in Section 237 of the Income Tax Regulations (the “Regulations)?

Position: Question of fact. However, it would appear that the payments would be exempt from the reporting requirements found in Section 237 of the Regulations.

Reasons: The GL account titles would suggest that the payments would not be made “in respect of goods for sale or lease, or services rendered” as required in the definition of payee found in subsection 237(1) of the Regulations.

13 June 2012 Internal T.I. 2012-0448961I7 F - Paiements en trop faits par un employeur

CRA Tags
152(4), 5, 152(3.1), 152(4.2)
salary mistakenly paid after expiry of sick leave period and then repaid, treated as clerical error rather than s. 8(1)(n) adjustment
grant of extended period for employee to repay overpayment was not a s. 80.4 loan
Words and Phrases
loan

Summaries under ss. 8(1)(n) and 80.4(1).

Principales Questions: Quelles mesures seraient à prendre par 1) l’employeur, et 2) l’employé, pour corriger une situation où ce dernier reçoit des paiements par erreur pour une période dans une année antérieure où il était en congé maladie non payé ?

Position Adoptée: 1. L’employeur devrait émettre un feuillet T4 modifié pour l’année visée pour exclure les montants relatifs aux paiements en trop. 2. Suite à l’émission du feuillet T4 modifié, l’employé pourrait demander à l’ARC d’établir une nouvelle cotisation pour sa déclaration de revenus et de prestations pour l’année visée.

Raisons: 1. Lorsqu’il est établi qu’un montant a été versé par erreur à un employé, l’ARC ne considère pas ce montant comme un salaire. Ainsi, l’alinéa 8(1)n) ne s’applique pas, et la section « Erreurs cléricales ou administratives » du guide RC4120 exige que l’employeur émette un feuillet T4 modifié pour l’année où le montant en trop a été versé à l’employé, et ce, afin d’exclure ce montant du revenu de l’employé.
2. L’employé a le droit de demander une nouvelle cotisation en vertu du paragraphe 152(4) pour une année d’imposition à l’intérieur de la période normale de nouvelle cotisation, ou du paragraphe 152(4.2) pour les années frappées de prescription. Dans le cas de ces dernières, l’ARC n’établira pas de nouvelles cotisations à moins que les demandes de redressement entrainent un solde créditeur ou néant.