Income Tax Severed Letters - 2015-07-08

Principal Issues: Whether positions adopted in 2009-0320311I7 and 2009-0323391R3 remain valid in light of the amendment to subparagraph (b)(i) of the advantage definition that replaced the language "open market" with "normal commercial or investment context".

Position: Yes.

Reasons: The amendment was simply clarifying in nature and did not alter the fundamental scope of the provision.

Principal Issues: Where a non-resident trust distributes property to a Canadian resident beneficiary, can the beneficiary elect to have the distribution at fmv?

Position: Perhaps - provided the property is not a taxable Canadian property or business property connected with a Canadian permanent establishment.

Reasons: Pursuant to subsection 107(2.002), where a non-resident trust makes a distribution, after 1999, of a property (other than taxable Canadian property or business property connected with a Canadian permanent establishment) to a beneficiary of the trust in satisfaction of the beneficiary's capital interest in the trust, the beneficiary may elect out of the rules in subsection 107(2) in respect of the distribution, with the result that subsection 107(2.1) applies in respect of the distribution.

Principal Issues: Are payments exempt from tax under paragraph 81(1)(h), where the payments are received for the supports in a support home of a person with a XXXXXXXXXX disability?

Position: Question of fact and likely in this case.

Reasons: Must meet the requirements to be exempt under paragraph 81(1)(h).

Principal Issues: An exchange of employee stock options occurs and the conditions in subsection 7(1.4) are not satisfied. The exchange of stock options would result in a disposition and paragraph 7(1)(b) applying. Could the value of the old stock options that are exchanged for the new stock options be considered "the amount, if any, paid by the employee to acquire those rights", for purposes of 7(1)(b)?

Position: Where 7(1)(b) applies an employee is deemed to receive a benefit equal to the value of the consideration received as a result of the disposition of rights under the stock option minus the amount, if any, paid by the employee to acquire those rights. The reference to "paid by the employee to acquire those rights", refers to the rights under the stock option that is disposed of or exchanged.

Reasons: Provisions of 7(1)(b).