Income Tax Severed Letters - 2013-02-20

Principales Questions: 1. Whether landscaping activities constitute construction activities for the purpose of section 238 of the Regulations.
2. How to determine whether a person's business is derived primarily from construction activities?

Position Adoptée: 1. In most cases, landscaping activities may be described as construction activities.
2. The CRA has not adopted any particular method. It depends on each situation.

Raisons: 1. Common meaning of "construction" and the definition of "construction activities" in subsection 238(1) of the Regulations. For example, the installation or improvement of a surface or sub-surface construction is described in the definition of "construction activities".
2. Question of fact.

Summary under Reg. 5907(2.03).

Principal Issues: Would proposed subsection 5907(2.03) of the Regulations result in a foreign affiliate being required to deduct in taxation year X and subsequent taxation years, amounts that it had previously deducted in computing its earnings in taxation years preceding taxation year X for which its calculation of earnings had been made in accordance with the income tax law of its foreign jurisdiction?

Position: No

Reasons: It is our view that in applying proposed subsection 5907(2.03) of the Regulations in respect of the active business of a foreign affiliate for the particular taxation year referred to in that subsection, any deduction claimed by the foreign affiliate in computing its earnings or loss from that business, in any taxation year of the affiliate that began on or before the commencement of the particular taxation year and for which its earnings or loss from that business had been determined under subparagraph (a)(i) or (ii) of the definition "earnings" in subsection 5907(1) of the Regulations, would be considered to have been actually claimed under the Act and to be within the maximum amount deductible.

Principal Issues: Will an NPO jeopardize its exemption from tax under 149(1)(l) where it incorporates a Community Contribution Company (C3) to carry on for-profit activities.

Position: The ownership of shares will not, in itself, cause the NPO to lose its exempt status.

Reasons: Whether an organization is organized and operated for non-profit purposes is a question of fact in each situation.

Principales Questions: Do the payments made qualify as royalties subject to 212(1)(d)? If yes, do they qualify for the 212(1)(d)(vi) exception? If they do not qualify for this exception, are they exempt from part XIII tax under the Canada - U.S. Tax Treaty?

Position Adoptée: General comments given the facts submitted, but the payments should be exempted under 212(1)(d)(vi) if they are in respect of the copyright in respect of the production or reproduction of literary, dramatic, musical or artistic work.

Raisons: Wording of 212(1)(d)

Principal Issues: 1. 116 filing requirements of estates with NR executors.

Position: 1. Regardless of whether the NR estate is "deemed" to be Canadian residence per the proposed NRT legislation...116 filing is required.

Reasons: 1. proposed 94(3) deems estate to be Cdn resident if "resident contributor" or "resident beneficiary" as those terms are defined for specific purposes of the Act but not for s. 116.

Principal Issues: 1. Are the views expressed in technical interpretation 2000-0011595 still valid? 2. For the purpose of determining whether a particular property owned by a family farm corporation, has been principally used in the business of farming by an eligible person could such period include a period of time where the land was only rented or leased by an eligible person.

Position: 1. The comments in document 2000-0011595 are still valid. 2. See response but yes.

Reasons: The law

Principal Issues: Whether the use of cooking oil waste in the production of electrical energy meets the definition as "eligible waste fuel" under classes 43.1 and 43.2.

Position: No

Reasons: General information provided as cooking oil can be used as a feedstock for anaerobic digestion.

Summaries under s. 66.2(5) and s. 248(1) - "scientific research and experimental development."

Principal Issues: Are the costs of drilling and completing a shale natural gas well considered CDE?

Position: Question of fact, but generally yes.

Reasons: In general, expenses to drill and complete a shale gas well may qualify under subparagraph (a)(ii) of the definition of CDE, if that particular well meets the purpose test set out in the definition of an "oil or gas well" in subsection 248(1) of the Act and if the expenditure was not on account of CEE or SR&ED.