Income Tax Severed Letters - 2015-08-19

Principal Issues: Does paragraph 12(1)(x) of the Act apply to financial assistance received under the self-employment program for support amounts such as living supports, dependent care, transportation, etc.

Position: It is a question of fact.

Reasons: Where the funding is provided through a program that is established under the Labour Market Development Agreement, the amounts appear to meet the criteria of subparagraph 56(1)(r)(iii) and would be included in income under that provision. Where the funding is provided from other programs, the amounts are assistance under paragraph 12(1)(x).

Principal Issues: Does paragraph 56(1)(n) of the Act apply to the various payments (tuition, dependent care, living allowances, books, travel, etc), made to the participants of the program?

Position: a. Where the funding is provided through a program that is established under the Canada-XXXXXXXXXX Labour Market Development Agreement, the amounts appear to meet the criteria of subparagraph 56(1)(r)(iii) and would be included in income under that provision.
b. Where the funding is provided from other programs that do not meet the criteria of paragraph 56(1)(r), the amounts would be considered bursaries under paragraph 56(1)(n).

Reasons: a. The preamble to the LMDA states that it is the subject of an agreement between the XXXXXXXXXX and the Canada EI Commission because of section 63 of the EI Act, and is similar to a program established under Part II of the EI Act.
b. Not all assistance provided appears to meet the requirements of paragraph 56(1)(r). The primary purpose of the funding is to allow the clients to pursue their education.

Principal Issues: 1. To the extent that an exempt foreign trust would be deemed to be a non-resident corporation controlled by its beneficiary under subsection 94.2(2) and, therefore, a CFA of its beneficiary under subsection 95(1) and the beneficiary is a "financial institution" (as defined in subsection 142.2(1)), would the trust also be a "financial institution" (as defined in subsection 142.2(1)) and, therefore, subject to the specified debt obligation and mark-to-market property rules in sections 142.2 to 142.6 when calculating its FAPI? 2. Would the application of the deeming rule in subsection 94.2(2) to the trust result in the trust being required to compute its FAPI in Canadian currency under paragraph 95(2)(f.14) and, if so, could a proxy calculation be used to calculate its foreign currency gains/losses in circumstances where the trust does not provide the required information to the beneficiary?

Position: 1. Yes, the trust would be a financial institution under subparagraph (a)(iii) of the definition of "financial institution" in subsection 142.2(1) and would be subject to the specified debt obligation and mark-to-market rules in sections 142.2 to 142.6 for purposes of computing its FAPI under section 95. 2. Yes, the foreign currency gains and losses that would be FAPI of the trust would be required to be computed using Canadian currency. Although section 94.2 is a relatively new provision of the Act, the question of how to compute FAPI in circumstances where complete and full information may not be accessible is not novel, as it has historically been relevant in connection with CFA status under former subparagraph 94(1)(d) and paragraph (b) of the definition of "controlled foreign affiliate" in subsection 95(1) and as such, we will not comment on the specific proxy used in the particular circumstances.

Reasons: 1) To the extent that the conditions of subsection 94.2(1) would be met, subsection 94.2(2) deems the trust to be a corporation controlled by its beneficiary for the purposes of applying, amongst others, section 95 and subsection 91(1). As such, when applying section 95, the trust would be a CFA of its beneficiary and, therefore, the FAPI of the trust would be determined on the basis of Canadian tax principles which would include subsection 142.2(1) as well as the rules in sections 142.3 to 142.6. 2) Similar to 1), as the trust would be deemed to be a non-resident corporation that is controlled by its beneficiary for the purposes of applying section 95, the trust's FAPI would be determined as though it were resident in Canada and in Canadian currency under paragraphs 95(2)(f) and 95(2)(f.14), respectively, and as such, the foreign currency gains or losses that would be FAPI of the trust would be computed using Canadian currency and in accordance with the Act.

Principales Questions: 1. Can a legatee by particular pursuant to the Quebec Civil Code (QCC) be considered a beneficiary of an estate?
2. What is the tax treatment of the fruits and revenues pursuant to section 743 of QCC which are paid by the estate to the legatee by particular from the income of the estate? Should a T3 slip be filed?
3. If the estate applies paragraph 104(13.1), whether the part of the income of an estate paid to a legatee by particular is taxed at the level of the estate.

Position Adoptée: 1. Yes
2. Question of law. If the right of the legatee by particular to the fruits and revenues under the QCC is as a beneficiary of the estate, application of paragraph 104(6)b) and subsection 104(13). A T3 slip should be filed.
3. Yes

Raisons: 1. Wording of the Act and previous position.
2. Paragraph 104(6)b) and subsection 104(13). T3 Guide
3. Wording of the Act.

Principal Issues: Whether a qualifying home for the purposes of the Home Buyer's Plan, can be located outside Canada.

Position: No.

Reasons: The wording of paragraph (a) of the definition of "qualifying home" in section 146.01.

Principal Issues: 1. Can a child support payor claim the amount for an eligible dependant or the child tax credit in a specific factual situation?
2. In a shared-custody arrangement, how is the child care expense deduction allocated between parents on the breakdown of a marriage?

Position: 1. The child support payor cannot claim either the amount for the eligible dependant or the child tax credit.
2. After the breakdown of the marriage, in a shared-custody arrangement, the child care expense deduction must give consideration to a number of factors.

Reasons: 1. Subsection 118(5) of the Act generally restricts claims for personal tax credits under subsection 118(1) of the act for support payors.
2. When there is a breakdown of the marriage, factors such as the existence of a supporting person, the shared-custody arrangement and the proportion of child care expense that each parent may be required to make influence the amount deductible for income tax purposes.