Income Tax Severed Letters - 2014-02-05

Principal Issues: Whether business income earned by an Indian sole-proprietorship running a XXXXXXXXXX business is exempt. Whether employment income earned by an Indian employee would be exempt.

Position: Business income likely taxable. No opinion on whether employee's income is exempt.

Reasons: Factual determination. The factors connecting the income to the reserve will determine whether business income is situated on a reserve, and therefore exempt. Factors seem to connect the income to an off-reserve location. There is insufficient information to determine whether a future employee's salary would be exempt. Employment Income Guidelines apply.

Principal Issues: What are the Canadian income tax implications on the death of a non-resident taxpayer who jointly owns property in Canada?

Position: General comments provided in respect of (i) the application of the deemed disposition rules to a non-resident taxpayer under subsection 70(5) of the Act (ii) the limitations in respect of the principal residence exemption and the spousal roll-over provisions under paragraph 40(2)(b) and subsection 70(6) of the Act respectively, as the deceased was not a resident of Canada at all relevant times.

Reasons: Words of the legislation.

Principales Questions: Est-ce que le sous-alinéa 69(1)b)(ii) s'applique uniquement aux particuliers? / Whether subparagraph 69(1)(b)(ii) applies only to individuals.

Position Adoptée: L'interprétation de l'expression « donation entre vifs » n'est pas une question fiscale mais bien une question de droit privé des provinces. Par conséquent, nous ne pouvons rendre d'interprétation technique sur cette question. / The interpretation of the term "gift inter vivos" is not a tax issue but a matter of provincial private law. Consequently, we cannot provide a technical interpretation on this issue.

Raisons: L'expression « donation entre vifs » n'est pas définie dans la Loi. Puisque le droit fiscal est tributaire du droit privé applicable dans une province, nous devons donc nous référer au droit privé applicable dans une province. / The expression «gift inter vivos » is not defined in the Act. Since tax law is dependent on the private law in a province, we have to refer to the private law in a province.

Principal Issues: Does the interaction of section 126 and Article XVIII(2) and Article XXIX(2) of the Canada / US Tax Treaty limit the taxpayer's foreign tax credit claim in respect of his periodic pension payments arising in the US in the particular circumstances?

Position: No

Reasons: Words of the legislation permit a claim for the full amount of US taxes paid as a foreign tax credit in Canada in the circumstances, pursuant to section 126.