Income Tax Severed Letters - 2013-01-09

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”.

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.

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.

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

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.

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.

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.

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.

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.