Income Tax Severed Letters - 2017-03-15


2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.1, 2016-0674221C6 F - General deduction from tax - 123.4

Unedited CRA Tags
123.4; 125(1)
income on which the SBD was not claimed nonetheless is not eligible for the general rate deduction

Principales Questions: Whether the general deduction from tax provided for in subsection 123.4(2) will be increased when a corporation has the right to deduct an amount pursuant to subsection 125(1) but does not deduct such an amount.

Position Adoptée: No.

Raisons: The full rate taxable income (as defined in subsection 123.4(1)), computed for the purpose of the general deduction from tax, would be reduced by the least of the amounts determined under paragraphs 125(1)(a) to (c) in respect of the year (the amounts needed to compute the amount that would be deductible pursuant to subsection 125(1)) even if no amount is deducted pursuant to subsection 125(1).

2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.2, 2017-0682711C6 F - Dedicated Telephone Service for Income Tax Service

telephone service for those with complex technical tax issues will initially be limited to Ontario and Quebec CPAs

Principales Questions: What services will be offered by the new dedicated telephone service ("DTS") for income tax service providers, and what will be the target audience for this initiative?

Position Adoptée: The DTS will give service providers access to experienced CRA staff who can help with more complex issues than those typically dealt with by staff under the general enquiries service. The DTS will be launched as a three year pilot program, initially providing service to a limited number of Chartered Professional Accountants in Ontario and Quebec. If the pilot is successful, the DTS may be expanded nationwide to more income tax service providers on a permanent basis. The DTS is not intended for specialized tax professionals, whose issues should continue to be addressed by seeking advance income tax rulings, pre-ruling consultations or technical interpretations.

2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.3, 2016-0674821C6 F - Individuals separated living under the same roof

Unedited CRA Tags
118(1), 122.5, 122.6 and 248(1) "common-law partner"
couple under the same roof can be living separate and apart
Words and Phrases
living separate and apart

Principales Questions: (1) Is the CRA still of the view that separated individuals can continue to share the same residence and be considered as living separate and apart for Canadian income tax purposes? (2) What are the processes and policies that are followed by the CRA when a couple claims to be separated, while still living under the same roof? (3) In such a situation, what information must be provided by a taxpayer in order to have his or her separation recognized by the CRA for Canadian income tax purposes?

Position Adoptée: (1) Yes. (2) The CRA generally accepts the marital status declared by an individual on his or her income tax return when assessing the return. However, certain claims made on the return may be reviewed, either before or after assessment. Additional information pertaining to the individual’s marital status may be requested at that time. In the case of a claim for child and family benefits, such as the Canada Child Benefit and the Goods and Services Tax/Harmonized Sales Tax credit, where a separated couple remains at the same address and a change in marital status is requested, the CRA will generally request information before changing the status of the individuals and disburse the tax benefits claimed. (3) List of pertinent information provided.

Raisons: (1) It is the CRA's long standing position that it is possible for separated individuals to live separate and apart, while still occupying the same residence. However, whether individuals live separate and apart for Canadian income tax purposes is a question of fact that must be determined on a case-by-case basis. (2) ABSB, Individual returns Directorate and Benefit Programs Directorate’s process. (3) ABSB, Individual returns Directorate and Benefit Programs Directorate’s process.

2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.4, 2016-0674831C6 F - Changement d'usage - duplex

essentially the same as 2015-0589821E5 F
Unedited CRA Tags
45(1)a), 45(1)c)
substantially renovating the personal-use portion of a rental property (without changing floor areas) generally would not engage the change-of-use rules
apportionment of operating expenses of duplex used both personally and for rental income

Principales Questions: 1) Whether a change in use occurs when a taxpayer moves from one unit of a duplex to another unit, which he previously rented, and starts to rent the unit he used to inhabit?
2) Whether a change in use occurs as a result of important renovations made to one unit used for personal purposes, without any corresponding renovations being made to the other unit?
3) In the situation described in 2) whether certain expenses incurred in respect of the whole duplex should, after the renovation, be allocated on the basis of the relative FMV or relative cost of each unit, rather than based on the square meters of each unit?
4) In the situation described in 2), if the taxpayer were to dispose of the duplex, how should the proceeds of disposition be allocated considering the costs incurred for the renovation of one unit and the increase in value attributable to such renovation?

Position Adoptée: 1) Generally no, if the size of each unit is the same and the proportion of each use (personal and rental) of the duplex remains unchanged.
2) Generally no, unless the renovations are such that the size of the renovated unit is increased.
3) The allocation has to be reasonable considering all the relevant circumstances.
4) None.

Raisons: 1) Wording of paragraphs 45(1)(a) and 45(1)(c), considering that the duplex is one single property.
2) Wording of paragraph 45(1)(c).
3) In accordance with paragraph 18(1)(a), an expense is not deductible except to the extent is was incurred by the taxpayer for the purposes of earning income. The allocation has to be reasonable in the circumstances.
4) The question is based on assumptions which the CRA is unable to verify.

2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.5, 2016-0674801C6 F - Allocation et frais d'une automobile

Unedited CRA Tags
6(1)e), 6(2), 13(7)g), 13(7.1), 20(1)a), 67.3, 248(1), Rég. 1100
general reasonability of a car allowance rate of $0.54/$0.48 per kilometre including for electric vehicles

Principales Questions: Plusieurs questions au sujet des allocations kilométriques raisonnables et des frais de fonctionnement d'une automobile / Various questions on reasonable allowances based on number of kilometers and operating expenses of an automobile

Position Adoptée: Voir le document / See document

Raisons: Voir le document / See document

2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.6, 2016-0674861C6 F - Wholly dependent person tax credit

Unedited CRA Tags
meaning of support/legal custody not required/ITA is silent on number of days child must spend with parent

Principal Issues: Can a child be considered "wholly dependent for support" on a parent for the purposes of the Wholly Dependent Person Tax Credit where the parent does not have legal custody of the child?

Position: Question of fact.

Reasons: The question as to whether a child is "wholly dependent for support" on a parent does not depend upon legal custody arrangements per se.

2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.7, 2016-0674811C6 F - Allocations automobiles & dépenses afférentes

Unedited CRA Tags
6(1)b), 8(1)h.1)
if vehicle allowance is too low, employee can include the allowance and deduct the vehicle expenses/T2200 production expected

Principales Questions: 1. Est-ce que les allocations automobiles versées dans les différents scénarios proposés sont raisonnable ?/ Are the car allowances paid in the various proposed scenarios reasonable ? 2. Est-ce qu'un employé peut réclamer des frais afférents à l'utilisation de son véhicule à moteur dans l'exercice de son emploi si son employeur est d'avis que l'allocation versée pour l'utilisation dudit véhicule est raisonnable (alors que l'employé est d'avis contraire) ? / Can an employee claim a deduction for the use of his motor vehicle in the course of his employment if his employer is of the opinion that the allowance paid for the use of the said vehicle is reasonable (contrary to the employee’s opinion) ? 3. Est-ce que l'ARC peut préciser le montant des dépenses admissibles que peut réclamer un employé pour l'utilisation de son véhicule à moteur dans divers scénarios ? / Can the CRA specify the amount of eligible expenses an employee may claim for the use of his or her motor vehicle under various scenarios ?

Position Adoptée: 1. Commentaires généraux / General comments. 2. Non / No. 3. Non / No.

Raisons: 1.Les commentaires généraux seront utiles pour répondre aux questions spécifiques / General comments will be helpful in answering specific questions. 2. Une des conditions à remplir pour qu'un employé puisse réclamer des dépenses d'emploi est qu’il doit joindre à sa déclaration de revenu le formulaire prescrit signé par son employeur, qui atteste que les conditions de travail énoncées à l’alinéa 8(1)h.1) sont remplies. Si l'employeur croit que l'allocation reçue par l'employé est raisonnable, les conditions énoncées à l’alinéa 8(1)h.1) ne sont pas remplies. L'employeur n'a aucune obligation de produire un tel formulaire. / One of the conditions for an employee to claim employment expenses is that he must enclose with his return the prescribed form signed by his employer certifying that the conditions of employment set out in paragraph 8(1)(h.1) are met. If the employer believes that the allowance received by the employee is reasonable, the conditions set out in paragraph 8(1)(h.1) would not be met. The employer has no obligation to produce such a form. 3. Cette Direction ne confirme aucun traitement fiscal résultant d'une situation donnée sauf dans le cadre d’une demande de décision anticipée. / This Directorate does not confirm any tax treatment resulting from a given situation except in the context of a request for an advance income tax ruling.

2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.8, 2016-0674851C6 F - HBTC - Acquisition by way of gift

Unedited CRA Tags

Principales Questions: Whether a taxpayer is eligible to the HBTC when he/she acquired a housing unit by way of donation?

Position Adoptée: Yes, if all other conditions of the HBTC are met.

Raisons: A housing unit acquired by way of gift is acquired for the purpose of the HBTC. Use of the term acquisition in the ITA.