15 August 1990 Administrative Letter EACC9326 F - SOS Questions and Answers - September Issue

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

SUBJECT: SOS Questions and Answers September Issue

In accordance with your request of July 11, 1990 we have reviewed the above-noted questions and answers.  A handwritten copy of this review has been delivered to Corinne Salvason August 14, 1990 as requested.

Our comments, in the attached appendix, are based on the provisions of the Income Tax Act as proposed to be amended by Bill C-28, C-62 and the Draft Amendments to the Income Tax Act and related statutes of July, 1990.  Unless otherwise indicated, the references to sections, subsections, etc., are to the Income Tax Act.

If you have any questions, please contact us.

Bernhard BuetowChiefTechnical Review SectionPublications DivisionLegislative and Intergovernmental Affairs Branch

1.     SOS.1 "Medical Expenses"

     As per discussions with Corinne Salvason, we have attached copies of correspondence between Specialty Rulings and the Thunder Bay district office dated October 8, 1986 in support of the response.

     The question zeroes in on a specific paragraph which may not, generally, reflect reality.  Perhaps if the question were generally phrased to ask if a motorized three wheel scooter qualified as a medical expense for tax purposes, the logical  methodology employed to obtain the answer could be demonstrated as follows:  "Medical expenses are defined at subsection 118.2(2) in respect of taxation years after 1987 (paragraph 110(1)(c) prior to 1988).  To qualify, the expenditure must fall squarely within one of paragraphs 118.2(2)(a) to (q).  A list of prescribed expenditures at paragraph 118.2(2)(m) and ITR 5700 (expanded by a December 20, 1988 Finance Release) is provided assuming no other paragraph in subsection 118.2 is applicable.  A motorized three wheel scooter for disabled persons is not specifically mentioned.  It does, however, meet the common dictionary definition of wheelchair and is accepted as such by the Department; it therefore qualifies as a medical expense when paid in accordance with paragraph 118.2(2)(i) and assuming all other conditions under subsection 118.2(1) have been met".

2.     SOS .2 "Federal Sales Tax Credit"

     It was noted that the same question raised July 1988 was initially answered in the negative stating that the credit (FSTC) could only be claimed in the post-bankruptcy return.   Technical Interpretations review indicated that "it appears that" the FSTC could be claimed on both pre- and post-bankruptcy returns.  23 however, we agree with our previous commentary of July 21, 1988 that the FSTC can be claimed in both returns for the following reasons:

     References to "year" and "end of the year" in subsection 122.4(3) are references to the taxation year referred to in the preamble.  A taxation year in respect of an individual is by paragraph 249(1)(b) the calendar year; however, 249(1) goes on to elaborate that references to a calendar year taxation year are also references to taxation years ending (or coinciding with) in that calendar year.  This means that an individual's taxation year end will not always be December 31.  The pre-bankruptcy taxation year is deemed to end one day before the bankruptcy (paragraph 128(2)(d)) and a new taxation year commences the day of bankruptcy ending December 31 of that calendar year.  The stage is set for two taxation years within one calendar  - 2 - year.  Section 122.4 does not prorate income over 365 days or otherwise provide for any means of allocating the FSTC over the two returns.  Subsection 128(2) does not restrict the claiming of tax credits (except for the trustee filed return as per paragraph 128(2)(e)) in either returns but simply prohibits the claiming of prior year's losses and current bankruptcy induced losses from the trustee filed return in the post-bankruptcy return only (paragraph 128(2)(f)).  Nor are their special rules to allocate personal exemptions and tax credits as exist with respect to part year residents at section 114.2 or the death of a taxpayer at section 118.93. In short, the technical ramifications are that a full FSTC claim is permissible in both returns (pre- and post- bankruptcy) terminating within the same calendar year; however, the availability of the FSTC to the individual is dependent upon the provisions of the relevant Bankruptcy Law.

3.     SOS.3 "Child Care Expenses"

     The first paragraph of the answer should expand the phrase "expense incurred" which usually denotes a legal obligation to make payment although payment is not technically required at this stage.  The second paragraph can now continue the logical flow by stating that having incurred the expense a deduction may only be claimed when in fact an "amount" is paid.  The term "amount" is defined at subsection 248(1) and means "money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing ...".  This provision allows non-cash receipts or payments to be quantitatively expressed in money, generally the fair market value (FMV) of goods or services given up (See para. 8, IT 490).  In the cases at hand, the simultaneous providing and rendering of child care services and board and lodging constitute simultaneous payment and receipt for both parties.     The FMV of the board and lodging or the FMV of the child care services provided, whichever is more readily determinable, represent the amount of child care expenses paid for purposes of Section 63 and the amount of the taxable employment benefit per paragraph 6(1)(a).

     In consideration of the above comments we advise striking paragraph 3 of The SOS.3 response.

     As a final commentary, perhaps a note could be added that non-employment related barter transactions are discussed at IT 490.

4.     SOS.4 "Legal Expenses/Retiring Allowances"

     Perhaps a mention that any legal expenses paid and not deducted in a particular taxation year are eligible to be carried forward up to 7 additional years but only to the extent of income received for which those legal expenditures were incurred.