Income Tax Severed Letters - 2014-06-04

Technical Interpretation - External

22 May 2014 External T.I. 2014-0519811E5 F - Droit d'usage au Québec pré-1991

CRA Tags
248(3), 54(1)
usufructuary of duplex unit (with her right acquired pre-1991) entitled to claim principal residence exemption on post-1991 disposition
usufructuary of duplex unit was de facto owner thereof
effective grandfathering of right as usufructuary which arose before 1991

Principales Questions: Le droit d'usage que Mère s'est réservé à l'égard d'une unité d'un duplex lors de la donation de ce dernier en XXXXXXXXXX lui confère-t-il la propriété légale ou de fait de tout ou partie de l'immeuble aux fins de l'exemption pour résidence principale? Does Mother's right of use on a duplex unit reserved to herself when the duplex was donated in XXXXXXXXXX constitutes a legal or de facto ownership of the property or part of it for the purpose of principal residence exemption?

Position Adoptée: Il semblerait que Mère soit demeurée propriétaire de fait de l'unité A selon le paragraphe 248(3), dans sa version pré-1991. Mère pourrait donc réclamer l'exemption pour résidence principale pour l'unité A si elle remplit également les autres conditions. It seems that Mother remained the de facto owner of unit A under the pre-1991 version of subsection 248(3). Mother could thus claim the principal residence exemption for unit A if all the other conditions are also met.

Raisons: Position antérieure concernant l'usufruit et le droit d'habitation. Previous position regarding usufruct and right of occupation.

20 May 2014 External T.I. 2014-0517331E5 F - CII - exploitation agricole

CRA Tags
127(9), 127(27), 127(36)
test is of intention on acquisition to use over 50%, during months of likely use during the equipment’s lifetime, on farm in the region
Words and Phrases
no ITC reversal if unanticipated transfer of equipment to a farm outside the region
co-owners entitled to pro rata ITCs

Principales Questions: 1) Est-ce que les équipements de fermes acquis par le contribuable sont admissibles au crédit d'impôt à l'investissement (CII) même si les équipements n'ont pas été utilisés exclusivement dans XXXXXXXXXX? / Are the farming equipments bought by the taxpayer eligible for the investment tax credit (ITC) even if the equipments were not used exclusively in XXXXXXXXXX?
2) Est-ce que chacun des copropriétaires peut réclamer une partie du CII sur le même équipement? / Can two co-owner each claim a portion of the ITC for the same equipment? 3) Si la terre XXXXXXXXXX est vendue dans l'année subséquente et que tous les équipements sont rapatriés sur les terres du contribuable dans une autre région, est-ce que le CII doit être remboursé? / If the farm in XXXXXXXXXX is sold and that all the equipments are moved to another farm belonging to the taxpayer in another region, does the ITC need to be reimbursed?

Position Adoptée: 1) Question de faits / Question of facts 2) Oui / Yes 3) Non / No

Raisons: 1) L'ARC ne se prononce habituellement pas lorsque l'application d'un paragraphe repose sur un test d'intention puisque chaque situation doit être examinée en fonction des faits particuliers. / The CRA usually does not conclude when the application of a paragraph is an intention-based test since each situation must be examined in relation to the particular facts. 2) Le CII est calculé sur le total des investissements de biens admissibles pour chacun des copropriétaires / The ITC is calculated on the total of investments in qualified property for each co-owner. 3) La loi ne prévoit pas de remboursement du CII dans cette situation / The law does not provide for a reimbursement of the ITC in that situation.

15 May 2014 External T.I. 2014-0516831E5 - Critical illness insurance

Principal Issues: Taxation of critical illness insurance

Position: No comments without a copy of the policy.

Reasons: See below.

12 May 2014 External T.I. 2013-0503531E5 F - Discretionary Dividends Shares

CRA Tags
85(1.3), 245(2), 110.6(7)(b), 51(2), 15(1), 85(1)(e.2)
grandchild wholly owned by individual directy and through immediate subsidiary is wholly-owned corporation

Principales Questions: Mr. X is the sole shareholder of Opco. After an internal reorganization, Mr. X transfers on a rollover basis pursuant to subsection 85(1) discretionary dividend shares of the capital stock of Opco to Gesco, a corporation wholly-owned by Mr. X in consideration of common shares of the capital stock of Gesco. Whether paragraphs 85(1)(e.2) and 110.6(7)(b) would apply in the particular situation.

Position Adoptée: General comment provided.

Raisons: According to the law.

11 April 2014 External T.I. 2013-0515121E5 - Application of 162(7.01) and (7.02) penalties

CRA Tags
205.1(1), 162(7.01), (7.02), ITR 205(3)
separate penalty for each form

Principal Issues: 1. In the application of subsection 162(7.01), is a taxpayer liable to a penalty for each type of information return that is late-filed? 2. In the application of subsection 162(7.02), is a taxpayer liable to a penalty for each type of information return that is not filed electronically?

Position: 1. & 2. Yes.

Reasons: 1. & 2. The application of these penalties is based on the number of prescribed information returns of a particular type.

31 March 2014 External T.I. 2013-0513191E5 - Director/Executor liability

CRA Tags
159, 227.1, 160
circumscribed liability of executor for corporate tax liabilities

Principal Issues: (1) Does an executor have an obligation to file T2 returns for a corporation of which the deceased person was the sole shareholder and director, and if so, what section of the ITA requires this? (2) Can the CRA take action that would make a deceased taxpayer liable for debts owed by the corporation of which he or she was a director? If so, what section of the ITA allows this? (3) If the CRA was to make the deceased taxpayer liable for debts owed, how could the executor object to this? (4) If the CRA was to make the deceased taxpayer liable, can the executor be held liable for these amounts? If so, under what authority under the ITA would this occur?

Position: (1) There is no direct obligation imposed by the Act for the executor to file tax returns on behalf of a corporation of which a deceased person was the sole shareholder and director. (2) Yes. For examples, see sections 227.1 and 160. (3) The executor could challenge the validity of the underlying assessment. (4) If and when distributions are made, the executor will need to obtain a clearance certificate. If he or she does not do so, he or she may be liable for the deceased's tax owing.

Reasons: The determination of the potential liabilities of the executor is a question of fact.

28 March 2014 External T.I. 2013-0514361E5 - XXXXXXXXXX pension

CRA Tags
3(a), 56(1)(u), 56(1)(d)

Principal Issues: Whether payments from the XXXXXXXXXX government to XXXXXXXXXX victims are taxable.

Position: No. The payments in this case are personal injury damages.

Reasons: The facts show that the payments in question are as a result of an action in personal injury damages. The Canada Revenue Agency's general position on the taxable status of a personal injury settlement is discussed in Interpretation Bulletin IT-365R2, Damages, Settlements and Similar Receipts. As indicated in paragraph 2 of IT-365R2, amounts received by a taxpayer as special or general damages for personal injury are excluded from income and, as a result, are not subject to income tax.

Technical Interpretation - Internal

6 May 2014 Internal T.I. 2014-0528761I7 - Ontario energy and property tax credit

CRA Tags
Ontario Taxation Act 98, Ontario Taxation Act 103.9, Ontario Taxation Act 103.6, Ontario Taxation Act 103.10, Ontario Taxation Act 103.11

Principal Issues: Can two individuals claim a portion of the property tax amount for purposes of the Ontario energy and property tax credit where they each pay a portion of the property taxes on the principal residence?

Position: Depends on the facts, but not in this situation.

Reasons: An individual cannot include municipal taxes paid to determine occupancy costs if the individual is neither a beneficial owner nor an individual who pays rent, however, the beneficial owner of the residence for whom the payments were made may be able to include those amounts to determine his or her occupancy costs.

22 April 2014 Internal T.I. 2014-0526381I7 - Regulation 105 Government Contracts

CRA Tags
153(1.1), 153(1)(g), 227(8.4), ITR 105(1)

Principal Issues: 1. Whether the Government of Canada must withhold 15 percent of the amount to be paid to a non-resident contractor in respect of services provided in Canada pursuant to paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations.

Position: 1. Yes, provided no waiver is obtained.

Reasons: 1. Paragraph 153(1)(g) of the Act requires every person paying fees, commissions or other amounts for services to withhold and remit from such payments in accordance with the rules under section 105 of the Regulations. The term "person" is broad in scope and includes individuals, trusts, and corporations, as well as the Crown, and any entity that is exempt from taxation under Part I of the Act.

11 March 2014 Internal T.I. 2013-0506801I7 - Salary and Wages, Part IV of the Regulations

CRA Tags
Part IV Regulations, 248(1) "salary or wages"
no s. 8 deductions; payroll of PEs outside Canada included

Principal Issues: 1. Whether the meaning of "salary or wages" provided by subsection 248(1) of the Income Tax Act (the "Act") is applicable to the term "salaries and wages paid in the year by the corporation" for the purposes of subsection 402(3) of the Regulations. 2. Whether the employment income of a non-resident employee, performing duties at a permanent establishment of a Canadian corporation in Canada, is included in the definition of "salary or wages" in subsection 248(1) of the Income Tax Act, and in the calculation of "salaries and wages paid in the year" within the meaning of subsection 402(3) of the Income Tax Regulations. 3. Whether the employment income of a non-resident employee paid by a corporation resident in Canada and attached to a permanent establishment of the corporation outside of Canada is included in the calculation of "salary or wages" for the purposes of subsection 402(3) of the Regulations.

Position: 1. Yes; 2. Yes; 3. Yes

Reasons: 1. The expression "salaries and wages paid by the corporation in the year" incorporates all remuneration paid or payable in respect of services rendered by an employee that is required to be included in to income under subdivision a of Division B of Part 1 of the Act. 2. The definition of "salary or wages" in subsection 248(1) of the Act is not limited to those individuals who earn income from office or employment who are resident in Canada. The definition provides that the computation of salary and wages is the amount as computed under the rules in subdivision a of Division B of Part 1 of the Act, which includes the amount paid by the Canadian corporation to the non-resident employee whose income is exercised in Canada. 3. Whether a non-resident employee, paid by a corporation resident in Canada and attached to a permanent establishment of the corporation outside of Canada, is liable to tax in Canada is not relevant for the purposes of the income allocation rules provided in subsection 402(3) of the Regulations.

18 December 2013 Internal T.I. 2012-0472211I7 F - Voyages offerts par une compagnie

CRA Tags
67.1, 6(1)(a), 18(1), ITR 200(2)(g), 67, 9
Caribbean sales incentive trip provided to incorporated sales reps represents a benefit to them from their corporation
Caribbean sales incentive trip provided to incorporated sales reps excluded if s. 6(1)(a) benefit to them qua employee
Caribbean sales incentive trip is "entertainment"
Caribbean sales incentive trip provided to incorporated sales reps was s. 9 income to their corp to extent of personal portion

Principales Questions: Several questions regarding tax treatment of awarded trips by a company to its workers.
Questions diverses concernant le traitement fiscal de voyages offerts par une compagnie à ses travailleurs.

Position Adoptée: See document. /Voir document.
RAISONS : See document. /Voir document.

14 November 2013 Internal T.I. 2013-0485331I7 F - REÉR et revenu d'un Indien

CRA Tags
81(1)(a), Indian Act - 87
RPP benefits exempt if contributions exempt/RRSP withdrawals exempt if contributions not deductible

Principales Questions: Quelles sont les raisons pour lesquelles les prestations d'un RPA provenant d'un revenu exonéré d'un Indien seraient non imposables (voir le document 2007-024068), tandis que les fonds d'un RPA provenant d'un revenu exonéré donneraient lieu à un revenu imposable une fois transférés dans un REER immobilisé (voir le document 2009-033576)? [TRANSLATION] For what reasons are RPP benefits that are derived from an exempt income tax-exempt themselves (see document 2007-024068) while funds in an RPP that are derived from an exempt income would give rise to a taxable income once these funds are transferred into a locked-in RRSP (see document 2009-033576)?

Position: Les faits décrits dans les deux documents ne sont pas les mêmes. [TRANSLATION] The facts that are described in the two documents are not the same.

Raisons: La politique administrative de l'ARC à l'égard des REER ne s'applique pas à la situation décrite dans le document 2009-033576 pour exempter d'impôt les retraits d'un REER, étant donné que la série de transactions qui a eu lieu dans ce cas n'a pas donné lieu à un retrait proprement dit du REER. [TRANSLATION] The CRA's administrative policy in respect of RRSPs does not apply to the situation described in document 2009-033576, that is to exempt RRSP withdrawals from tax, given that the series of transactions that took place in this case did not result in an actual RRSP withdrawal.

Le 14 novembre 2013