Income Tax Severed Letters - 2013-09-11

Ruling

2013 Ruling 2012-0449681R3 - Split-Up Butterfly - Farm

CRA Tags
55(3)(b), 55(2)

Principal Issues: Whether the butterfly dividends are exempt from 55(2) as a result of qualifying under 55(3)(b)?

Position: Yes

Reasons: Proposed transactions meet the requirements of 55(3)(b).

2012 Ruling 2012-0437941R3 - Structured Settlement Supplemental Ruling

CRA Tags
56(1)(d)

Principal Issues: Changes to Ruling 2010-038251.

Position: Ruling modified.

Reasons: Change in facts does not affect the validity of the ruling given.

2010 Ruling 2010-0382511R3 - Structured Settlement

CRA Tags
56(1)(d)

Principal Issues: An individual (Plaintiff) suffered personal injuries as a result of a motor vehicle accident. The Plaintiff commenced an action for damages against the driver of the vehicle (Defendant). Pursuant to an out of court settlement, the Defendant's insurer (pursuant to a Settlement Agreement And Release), will purchase a single-premium annuity contract with a life insurance company to provide the proposed periodic payments to be received under the settlement agreement. The Defendant's insurer will direct the life insurance company to pay the periodic payments under the annuity contract to the Plaintiff. Will such payments be taxable in the hands of the recipient?

Position: No.

Reasons: The terms of the structured settlement are consistent with the CRA's position as set out in paragraph 5 of Interpretation Bulletin IT-365R2.

Technical Interpretation - External

13 August 2013 External T.I. 2012-0471401E5 F - FMV - partnership interest

CRA Tags
85(1)(e.2), 96(3), 34
Summary Under
Tax Topics - General Concepts - Fair Market Value - Other
deferred tax liability re deferred (s. 34) partnership income recognition reduces partnership interest FMV
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(c)
FMV of professional partnership interest would normally discount the value of s. 34-elected WIP for income taxes
Summary Under
Tax Topics - Income Tax Act - Section 34
FMV of partnership interest reduced re deferred income taxes on WIP subject to s. 34 election

Principales Questions: Whether deferred tax in respect of works in progress (subject to an election under section 34 of the Act) might be considered in order to establish the FMV of a professional partnership interest?

Position Adoptée: General comments provided.

Raisons: Question of fact.

12 August 2013 External T.I. 2012-0468581E5 - Condo corp sale or rental of caretaker suite

CRA Tags
15(1), 248(1), 149(1)(l)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(l)
rental of caretake suite at FMV is a profit-making activity

Principal Issues: Will a condominium corporation maintain its exemption in these situations: 1) Sale of caretaker suite at FMV; 2) Rental of caretaker suite at FMV; 3) Conversion of caretaker suite into a guest suite; 4) Appropriation of caretaker suite for other purposes such as, for example, a fitness/health centre

Position: 1) Probably; 2) Probably not; 3) It depends; 4) It depends.

Reasons: In each case, it will depend on the details of the transaction.

6 August 2013 External T.I. 2012-0469481E5 F - Benefit under trust

CRA Tags
105(1), 69(1)(b)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1)
taxable benefit on sale to beneficiary at undervalue was not eliminated under s. 105(1)(a) when beneficiary sold the property
Summary Under
Tax Topics - Income Tax Act - Section 52 - Subsection 52(1)
benefit on estate sale to beneficiary at under-value added to property's ACB
Summary Under
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b)
taxable benefit added to acb

Principales Questions: In a particular fact situation, whether the exclusion contained in paragraph 105(1)(a) is met?

Position Adoptée: No.

Raisons: The value of the benefit to the taxpayer from or under the trust should be added to the cost of the property pursuant to subsection 52(1). Therefore, where the taxpayer will sell the property, the capital gain otherwise computed will not include the value of the benefit.

24 July 2013 External T.I. 2012-0455801E5 - Trustee in bankruptcy

CRA Tags
128(1), Bankruptcy and Insolvency Act 67, Bankruptcy and Insolvency Act 70, Bankruptcy and Insolvency Act 136, 159(2), 159(3)
Summary Under
Tax Topics - Income Tax Act - Section 128 - Subsection 128(1)
Summary Under
Tax Topics - Income Tax Act - Section 223 - Subsection 223(11.1)

Principal Issues: 1. Whether a trustee in bankruptcy is required to pay secured creditors in priority to paying the tax liability. 2. Whether there is any requirement in the Income Tax Act for the trustee in bankruptcy to pay the bankrupt's income tax prior to a secured debt. 3. What is considered to be the "property of the bankrupt in the trustee's possession" for the purposes of paragraph 128(1)(e) of the Income Tax Act. 4. Whether the CRA can provide confirmation to a trustee in bankruptcy that the trustee's liability has been extinguished with respect to a corporation's tax payable.

Position: 1. Yes. 2. Possibly. 3. General comments provided. 4. No.

Reasons: 1. It is our understanding that the Bankruptcy and Insolvency Act (the " BIA") provides that a secured creditor takes priority over any unsecured creditors, including an unsecured claim by the Minister for federal income tax. 2. Subsection 223(11.1) of the Income Tax Act (the "Act") provides that where the Minister complies with subsection 87(1) of the BIA, an unsecured claim may be deemed to be a secured claim. 3. The Act does not define what "property of the bankrupt in the trustee's possession" is. The BIA provides what is comprised in the property of the bankrupt with certain exceptions. 4. There are no provisions of the Income Tax Act that provide confirmation to a trustee in bankruptcy that the liability for any tax payable of the bankrupt has been extinguished.

24 July 2013 External T.I. 2013-0497901E5 - Exempt life insurance policy

CRA Tags
148(1), ITR 306, 148(9)

Principal Issues: Questions with respect to the insurer's responsibilities in maintaining a life insurance policy's exempt status.

Position: General comments provided.

Reasons: See below.

22 July 2013 External T.I. 2012-0467231E5 - Patronage dividends and capital gains

CRA Tags
135
Summary Under
Tax Topics - Income Tax Act - Section 135 - Subsection 135(1)

Principal Issues: 1. Whether patronage dividends paid to members totalling the amount of taxable capital gains realized by a co-op will be deductible by the co-op pursuant to subsection 135(1)? 2. Whether the patronage dividends will be taxable to the members?

Position: 1. Yes, provided all requirements of section 135 are met. 2. A patronage dividend that is received by a member of a co-op is included in the member's income for tax purposes under subsection 135(7) except for allocations in respect of "consumer goods or services".

Reasons: 135(1); 135(7)

18 July 2013 External T.I. 2013-0483031E5 - Applying Income Tax Refund to Security for GST

CRA Tags
ETA 240(7), 164(2), ETA 240(6), 164(2.01)
Summary Under
Tax Topics - Income Tax Act - Section 164 - Subsection 164(2.01)
Summary Under
Tax Topics - Income Tax Act - Section 164 - Subsection 164(2)

Principal Issues: 1. Whether a non-resident's failure to post security creates a liability to engage subsection 164(2) of the ITA to enable the Minister to apply an income tax refund to a GST/HST liability.
2. Whether the posting of security is a return required to be filed under the ETA so that subsection 164(2.01) of the ITA could be invoked, forbidding the Minister from issuing an income tax refund.

Position: 1. No. 2. No.

Reasons: 1. GST Form 114 facilitates the posting of security as subsection 240(6) of the ETA requires; however, subsection 240(6) of the ETA is not a charging provision, as it does not create a liability if the non-registrant does not comply. Subsection 164(2) of the ITA applies to a present or imminent liability, neither of which is created under subsection 240(6) of the ETA.
2. Subsection 164(2.01) of the ITA forbids the Minister from issuing an income tax refund unless all returns under a number of statutes are filed. GST Form 114 is not a return; therefore, subsection 164(2.01) of the ITA cannot be engaged to prevent the issuance of an income tax refund.

18 July 2013 External T.I. 2013-0493081E5 - Definition of "Outside Canada" - Water Boundaries

CRA Tags
Oceans Act 4, 255, Oceans Act 18, 122.3(1), Oceans Act 17(1), Interpretation Act 35(1), Oceans Act 13(1)
Summary Under
Tax Topics - Income Tax Act - Section 122.3 - Subsection 122.3(1)
Summary Under
Tax Topics - Income Tax Act - Section 255

Principal Issues: What is the Canadian boundary for qualifying as "outside Canada" for the purposes of the Overseas Employment Tax Credit?

Position: It depends.

Reasons: If the qualifying activity relates to the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources, and takes place offshore at a location where Canada or a province has the right to grant permission for the employer to exercise the activities, the activity will be considered to take place in Canada as expanded by paragraph 255(b) of the Act.
If the qualifying activities relate to any separate construction, installation, agricultural or engineering activity, or any prescribed activity unrelated to the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources, it is our view that such activities will only be carried on in Canada if carried on up to but not exceeding 12 nautical miles offshore.

16 July 2013 External T.I. 2013-0477051E5 - medical expense - endovenous laser treatment

CRA Tags
118.2(2)

Principal Issues: Is the procedure for endovenous laser treatment ("ELVT") an eligible medical expense for purposes of the medical expense tax credit ("METC") under section 118.2 of the Income Tax Act (the "Act")?

Position: It is a question of fact.

Reasons: It depends on whether it is done purely for cosmetic purposes.

15 July 2013 External T.I. 2013-0486701E5 - Gift by will of a non-qualifying security

CRA Tags
118.1(6), 118.1(5), 118.1(13)(a), 70(5)(a)
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(13)

Principal Issues: Whether subsection 118.1(5) applies to a gift by will of a non-qualifying security to a qualified donee where the legal representative of the deceased individual makes a designation under subsection 118.1(6) in respect of the gift of the non-qualifying security for capital gains purposes.

Position: Subsection 118.1(13) applies to a gift of non-qualifying securities. In the case of a gift by will of a non-qualifying security, the timing of the gift is determined by subsection 118.1(5). Paragraph 118.1(13)(a) then applies to deem the gift not to have been made except for the purpose of applying subsection 118.1(6) to determine the proceeds of disposition of the security.

Reasons: Interplay between subsections 118.1(5) and (6) and paragraphs 70(5)(a) and 118.1(13)(a).

12 July 2013 External T.I. 2013-0492491E5 - Overseas Employment Tax Credit

CRA Tags
122.3, ITR 6000

Principal Issues: Whether employees are eligible for OETC.

Position: No.

Reasons: The employer is not engaged in a qualifying activity.

5 July 2013 External T.I. 2013-0478391E5 - Prescribed Prize - XXXXXXXXXX

CRA Tags
153(1)(g), ITR 7700, 56(1)(n), ITR 105(1)

Principal Issues: 1. Whether a cash prize awarded by the Foundation constitutes a "prescribed prize" for purposes of the Income Tax Act.
2. Whether the Foundation is required to withhold tax from any amount awarded as a cash prize to a recipient who is a non-resident of Canada.

Position: 1. Question of fact. In light of the information provided, yes.
2. Question of fact. In light of the information provided, no.

Reasons: 1. The legislation. 2. The legislation

2 July 2013 External T.I. 2012-0454251E5 - 149(1)(l) – donations to capital fund

CRA Tags
248(31), 149(1)(l)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(l)
sale of naming rights

Principal Issues: 1. Can an organization that is exempt from income tax under paragraph 149(1)(l) receive donations from its members and businesses affiliated with its members to fund a capital project? 2. Can the organization recognize the contributions from members on a "wall of honor" or through naming rights of capital assets?

Position: 1. Yes, provided that the capital project is funded with member contributions and gifts. 2. Question of fact, the amount received may be a donation or other income.

Reasons: Since an 149(1)(l) organization does not operate for profit, it funds capital projects through member contributions, gifts, grants and incidental profits. Provided a project is funded with member contributions and gifts, an increase in services to members will not indicate that income has been made available to its members.

12 March 2013 External T.I. 2013-0476351E5 - Taxation of Roth IRA

CRA Tags
Treaties Article XVIII(1), Treaties Article XVIII(3), Treaties Article XVIII(7)
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 18
election available to defer taxation on Roth IRA income

Principal Issues: (1) The requester asks for information regarding how Canadian tax applies to withdrawals made from a Roth IRA where an election, to defer Canadian tax applies with respect to undistributed income accrued in the Roth IRA, is filed by a Canadian resident. (2) What are the advantages of filing such an election?

Position: (1) Under paragraph 1 of Article XVIII of the Convention, distributions from a Roth IRA to a resident of Canada generally are exempt from Canadian tax to the extent they would be excluded from U.S. taxable income if paid to a resident of the U.S. (2) The election under paragraph 7 of the Convention is of benefit to an individual as otherwise, the accrued income would be taxable to the individual under the Act on a current basis.

Reasons: (1) Article XVIII, paragraph 1 of the Convention (2) Article XVIII, paragraph 7 of the Convention.

Technical Interpretation - Internal

16 July 2013 Internal T.I. 2013-0494011I7 - home buyers' plan

CRA Tags
248(1), 146.01(1)

Principal Issues: Does clause (i) of paragraph (f) of the definition of "regular eligible amount" in subsection 146.01(1) of the Income Tax Act bar a common-law partner from withdrawing funds under a home buyers' plan when the other common-law partner had a owner-occupied home in the period described in paragraph (e) of that definition?

Position: Depends on the facts. In this particular fact situation clause (i) of paragraph (f) of the definition of "regular eligible amount" is not a bar to the withdrawal under the home buyer's plan.

Reasons: The proposed definition of "common-law partner" and "regular eligible amount".

8 July 2013 Internal T.I. 2012-0470021I7 - Settlement of Future Benefits – ASO Plan

CRA Tags
6(1)(f), 54 "capital property", 248(1) property, 5(1), 6, 39(1)(a)(iii)
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(a) - Subparagraph 39(1)(a)(ii)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f)

Principal Issues: 1. Whether the Supreme Court decision in Tsiaprailis would apply to characterize a payment made by an arm's length plan administrator on an administrative services only ("ASO") basis, to an employee in settlement of future periodic benefits under a group disability plan, as a capital receipt from the disposition of a right. 2. If yes, whether the amount of the settlement is excluded from the calculation of the employee's capital gain by 39(1)(a)(iii).

Position: It is a question of fact which depends on whether the self-funded plan is in the nature of insurance and therefore an insurance plan ("IP").

Reasons: Where there is a valid IP and therefore a wage loss replacement plan for the purpose of 6(1)(f): 1. Tsiaprailis would apply; and 2. 39(1)(a)(iii) is broad enough to include the disposition of a right under an insurance policy or an IP.

5 July 2013 Internal T.I. 2013-0489821I7 F - Application of subsection 18(3.1)

CRA Tags
18(3.1)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(3.1)
realty taxes or premiums related to land which is renovation object are capitalized

Principales Questions: In a particular situation, a taxpayer acquired a rental property. The taxpayer made renovations to the property over a period of more than one year. Whether rental expenses such as insurance, interest and property taxes must be capitalized to the capital cost of the taxpayer's property pursuant to subsection 18(3.1)?

Position Adoptée: General comments provided.

Raisons: Application of the Act and previous positions.

21 June 2013 Internal T.I. 2012-0459731I7 - Government Assistance

CRA Tags
127(9), 12(1)(x), 127(18), 20(1)(hh)
Summary Under
Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Government Assistance

Principal Issues: Whether amounts received under the SADI program are considered government assistance?

Position: Yes

Reasons: The contributions do not appear to have ordinary commercial terms.

17 June 2013 Internal T.I. 2013-0475621I7 - PUC adjustment

CRA Tags
85(1)(c), 85(2.1)
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(2.1)

Principal Issues: Whether a downward adjustment to the PUC of common shares issued in consideration for property whose FMV was subsequently determined by the CRA to be nominal results from the application of subsection 85(2.1) in respect of a disputed transaction that occurred in a statute-barred taxation year

Position: Yes

Reasons: Where the Agreed Amount exceeds the FMV of the transferred property, the PUC adjustment pursuant to subsection 85(2.1) shall be made automatically to the date of the disputed transaction

23 May 2013 Internal T.I. 2013-0481651I7 F - Attribution rules- business loss

CRA Tags
75(2)
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
losses from adventure in nature of trade not attributed under s. 75(2)

Principal Issues: Whether subsection 75(2) applies to a:
a) business loss?
b) loss from an adventure or concern in the nature of trade?

Position: a) and b) No

Reasons: a) and b) Jurisprudence and IT-369R.

22 March 2013 Internal T.I. 2012-0470371I7 - Indian - XXXXXXXXXX

CRA Tags
81(1)(a)

Principal Issues: Is the employment income of an XXXXXXXXXX exempt from tax where the XXXXXXXXXX is temporarily located at an office on a reserve.

Position: It appears to fall within Guideline 1.

Reasons: Duties of employment were performed on a reserve during this period.

12 February 2013 Internal T.I. 2013-0475631I7 - Treatment of Settlement Amounts

CRA Tags
6(1)(a), 6(1)(f), 110.2, 120.31, 8(1)(n), 8(1)(b), 12(1)(c)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.2 - Subsection 110.2(2)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f)
Summary Under
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(b)

Principal Issues: 1. Whether the proposed settlement is taxable and a qualifying amount. 2. Whether the legal fees are deductible under 8(1)(b).

Position: 1. Question of fact. However, based on the surrogatum principle the amount would be taxable as it is intended to replace an amount that would have been taxable had it been originally received, it would be a qualifying amount and income averaging would likely be available. 2. Yes.

Reasons: 1. The law and interpretation principles. 2. Proposed 8(1)(b) will allow a deduction for legal expenses incurred by a taxpayer to collect, or establish a right to collect, an amount that, if received, would be included in computing the taxpayer's employment income.