25 November 1996 Income Tax Severed Letter - BULLETIN BOARD

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Welcome to the Income Tax Rulings & Interpretations Directorate Bulletin Board. The bulletin board contains commentary and announcements on current issues and information on the Directorate. You can scroll through the board or go directly to a topic by sub-searching on a keyword (eg DOCP) in the following index:

November 25, 1996

DOCU 96/11/25 Deferred Cash Grain Tickets
DOCT 96/11/25 Capital Gains Election
DOCS 96/09/26 PHSP - Same Sex Couples
DOCR 96/09/03 Income tax consequences of disaster
financial assistance for Quebec
flood victims

Directorate Information

DOCM Mandate
DOCN Mailing Address & General Phone Numbers
DOCP Work Section Phone Numbers
DOCU Deferred Cash Grain Tickets

This is further to various telephone inquiries regarding recent replies (File #'s 953237 & 962693) to general inquiries relating to the application of subsection 76(4) of the Income Tax Act (the "Act") as it relates to the following two situations:

CASH ADVANCE REPAYMENTS

A cash basis farmer, reporting on a calender year, receives an advance of $50,000 in October 1995 for stored grain. In November 1995, the farmer delivers $20,000 worth of grain to an elevator, of which $18,000 is applied against the $50,000 advance and a Deferred Cash Grain Ticket, dated January 2, 1996, was accepted for the $2,000 net balance.

PAYMENT OF EXPENSE RELATED DEBTS

In November 1995, the farmer delivers $20,000 worth of grain to an elevator, of which $18,000 is applied against expense related debts. A Deferred Cash Grain Ticket, dated January 2, 1996, was accepted for the $2,000 net balance.

The question in both situations was whether the full $20,000 or the $18,000 off-set is taxable in 1995 with the remaining $2,000 being deferred to 1996.

Our response in 953237 & 962693 with respect to the $18,000 payments in respect of cash advances and expenses was that in both instances the $18,000 would be income at the time the cash tickets were received. The cash grain ticket would show the purchase price of the grain to be $20,000 and the net amount of the producer's entitlement being only $2,000, which would be the amount of the deferral.

We have been made aware that these positions are not in line with an earlier position of the Department that the entire $20,000 would be deferred in that it represented the purchase price of the grain which is specifically stated in subsection 76(4) of the Act to be the deferred amount. However, any deferral is, of course, subject to the ticket meeting the requirements of subsection 76(4) of the Act. These requirements include:

• The ticket must entitle the holder thereof to payment, on the deferred date, of the purchase price stated in the ticket for the grain, without interest.

The past practice of deferring the entire $20,000, representing the purchase price of the grain as stated in subsection 76(4) of the Act, will continue to be the position of the Department. The question of whether these tickets meet the requirements of subsection 76(4) of the Act is under review and should there be any change to current published positions, Interpretation Bulletin IT-184R would be appropriately revised with effect on some future date.

Should there be any questions relating to this release, Murray Brake of the Rulings Directorate, can be contacted at telephone (613) 957-2133.

DOCT Capital Gains Election

The following is the text of a response which we recently issued concerning a situation where depreciable property that was the object of a capital gains election is later sold at an amount less than the elected amount but more than the original cost:

We are writing in response to your letter of August 16, 1996, wherein you requested our comments regarding the capital cost and adjusted cost base of depreciable property which has been the object of a capital gains election under subsection 110.6(19) of the Income Tax Act (the "Act").

In the example you provided, a taxpayer acquired a depreciable property in 1990 for $10,000. Capital cost allowance has never been claimed in respect of the property. In 1994, the taxpayer filed the capital gains election in respect of the property, designating an amount of $12,000 under subsection 110.6(19) of the Act. In 1995, the taxpayer sold the property for $11,000. You inquire whether, as a result of the disposition of the property, the taxpayer would have a terminal loss or a capital loss.

In your view, the taxpayer would not have a terminal loss, by virtue of paragraph 13(7)(e.1) of the Act. You also conclude that the taxpayer would not have a capital loss, by virtue of paragraph 39(1)(b) of the Act. You opine that this result is aberrant.

Our Comments

If the capital gains election that was filed in respect of the depreciable property described above was not excessive, the property would, pursuant to clause 110.6(19)(a)(ii)(C) of the Act, be deemed to have been reacquired by the elector immediately after February 22, 1994 at a cost equal to the designated amount ($12,000). As you indicated, if the property was sold in 1995 for proceeds of $11,000, the difference between the proceeds and the new adjusted cost base of the property ($11,000 - 12,000) would not give rise to a capital loss by virtue of subparagraph 39(1)(b)(i) of the Act.

In addition, for purposes of sections 13 and 20 of the Act, the property would, by virtue of the combined application of subparagraphs 13(7)(e) and (e.1) of the Act, be considered to have been reacquired by the taxpayer at a capital cost of $10,000. Given the definition of "undepreciated capital cost" in subsection 13(21) of the Act, we also confirm that a terminal loss would not arise on the subsequent disposition of the property.

Although this result may appear somewhat anomalous at first glance, it is not unlike the result that would ensue where depreciable property is disposed of to a corporation that does not deal at arm's length with the transferor and is then disposed of by the corporation at a loss.

DOCS Private Health Services Plans Same-sex Couples

As a result of the June 13, 1996 Tribunal Decision by the Canadian Human Rights Commission in the case of Stanley Moore & Dale Akerstrom, we have reviewed our position with respect to the definition of a "private health services plan," as found in subsection 248(1) of the Income Tax Act. After considering the comments of the Commission and an analysis of the Act by our legal counsel, it has been determined that a plan which provides coverage for same sex couples can meet the definition of a "private health services plan." As a result, there is no longer a need to create a separate plan for health care coverage for those dependants of an employee.

This interpretation is effective September 9, 1996 and will apply to existing as well as new health care plans.

DOCR INCOME TAX CONSEQUENCES OF DISASTER FINANCIAL ASSISTANCE FOR QUEBEC FLOOD VICTIMS

General Comments

Generally, when victims of a disaster receive payments from governments for personal losses, they do not have to include these payments in their income for tax purposes.

Any government compensation received for capital property should also not likely result in any tax consequences. Government compensation received for capital property destroyed is treated similarly to insurance proceeds so that the compensation is considered to be proceeds of disposition. The normal calculations for proceeds of disposition for tax purposes are therefore required. However, when the property destroyed is a principal residence, the principal residence exemption may exempt any gain; when the property is other personal use property, rules for calculating the gains on such property may eliminate any gain; and when a replacement property is acquired, any gain may be deferred. In addition, government compensation received for repaired damages to capital property is netted against the cost of the repairs made.

The following comments relate to the specific government compensation available to victims of the Quebec floods.

Personal loss

The $2,500 payments received by individuals for personal loss (e.g., temporary accommodation and meal expenses) are not taxable. Any costs that individuals incur as a result of these personal losses are not tax-deductible, since they constitute personal or living expenses.

Principal Residence and Contents

Tax consequences should be eliminated on the compensation for loss or damage of their principal residence and its contents by virtue of the principal residence exemption and the rules for dispositions of other personal use property. Replacement property rules may also be used.

Rental Buildings and Certain Business Properties

Compensation provided for the loss or damage of rental buildings and business properties should not result in any tax consequences for any owner who replaces the property destroyed or repairs the damages.

Inventory

Any compensation for inventory will result in an income inclusion which should be offset by the related inventory write off.

Employer Funded Assistance

Some employers may financially assist their employees during this transition period. Although such assistance is a taxable benefit received by virtue of employment, the Government will issue a Remission Order to eliminate any tax consequences arising from such payments from eligible employer arrangements. An employer arrangement will generally be eligible where the employee assistance is reasonable in the circumstances and the assistance is provided because of the employer/employee relationship and not because of shareholdings. Any employer making such payments should contact Victor Girard (418) 698-5560 at the Chicoutimi tax services office to ensure eligibility for the Remission Order.

Enquiries

Business Windows representatives at the nearest local Revenue Canada tax services office (Chicoutimi (418) 698-5780, Jonquiere (418) 548-9171 or 1-800-263-1485, Quebec (418) 648-5809) should be contacted regarding any questions concerning the tax consequences of the assistance received.

DOCM

INCOME TAX RULINGS AND
INTERPRETATIONS DIRECTORATE

MANDATE

The primary role of the Income Tax Rulings and Interpretations Directorate is to interpret the provisions of the Income Tax Act and related statutes, to establish Revenue Canada's interpretative policy relating to this statute and to ensure that this policy is both applied throughout Revenue Canada and provided to external clients in a consistent manner. In this regard, the Directorate is mandated to provide:

Major Lines of Business

-advance income tax rulings directly to clients in the private sector (for a fee) in respect of proposed business transactions;

-written and verbal technical interpretations to tax practitioners and the public on income tax matters;

-develop and publish interpretation bulletins and related technical newsletters

-technical advice and support to field offices, headquarters areas, and other departments and governments; and

-specialized technical assistance, when requested, to the Department of Finance with respect to the formulation of new income tax legislation.

These activities will, through the provision of accurate and consistent interpretations, foster a high degree of public confidence and encourage self-assessment compliance.

DOCN

INCOME TAX RULINGS AND

INTERPRETATIONS DIRECTORATE

MAILING ADDRESS

AND COURIER SERVICE:

25 NICHOLAS STREET

15TH FLOOR, ALBION TOWER

OTTAWA, ONTARIO

K1A 0L8

TAX SERVICES OFFICES HOTLINE: (613)957-8964

GENERAL ENQUIRY: (613)957-8953

FAX NUMBER: (613) 957-2088

SECURE FAX NUMBER: (613) 957-8946

DOCP

INCOME TAX RULINGS & INTERPRETATIONS DIRECTORATE
REVISED December 12, 1995

DIRECTOR GENERAL'S OFFICE

Roy C. Shultis TECHNOLOGY SECTION
A/Director General 957-2132
Lyne Charlebois, Terry Mallory
Adm Sup.Officer 957-2131 P. Leader 957-2110

Micheline Régimbald, Diane Lefebvre
Adm Officer 952-8108 Admin. 954-0649
James Kingsley Céline Garneau 952-5398
Receptionist 957-8953 Debbie Couture 957-2142
Maxine Bell
(10th Mac) 952-5804
INVENTORY UNIT
Sylvie Daoust 957-8958

FINANCIAL INDUSTRIES DIVISION BUSINESS AND PUBLICATIONS
DIVISION

Brian Darling, Bryan Dath,
Director 957-9767 Director 957-2089
C. Lebel, D. Hooley,

A/Div Sup.Clerk 957-8586 Div. Sup. Clerk 957-2090

FINANCIAL INSTITUTIONS SECTION      SECTION DES PARTICULIERS
                                     ET DES ENTREPRISES DE
 		                           SERVICE

Lee Workman, Chief 957-3497 Maurice Bisson,
Jenie Leigh 952-1505 Chief 957-2099
Gary Donell 957-3496 Sylvie Labarre 957-2121
Michèle Trotier 957-3494 D. Bouffard 957-2130
Michael Cooke 957-3498 Ghislaine Landry 957-9229
Roxane Brazeau-
LeBlond 957-2058

CORPORATE FINANCING SECTION BUSINESS & PROPERTY INCOME
AND EXEMPT ORGANIZATIONS
SECTION

Wayne Douglas, Chief 957-8957 Roberta Albert,
A/Chief 957-2100
Fiona Francis 957-8971 Murray Brake 957-2133
Peter Dunn 957-2747 John Brooks 957-2103
Steve Tevlin 957-2746 Bill Guglich 957-2102

Claude Tremblay 957-2744 Carole Chouinard 957-2098
Mary Pat Baldwin 957-2745 Bill Kerr 957-2139
Milled Azzi 957-8972

DEFERRED INCOME PLANS SECTION PERSONAL & GENERAL SECTION

Acting Chief 957-8979 John Oulton, Chief 957-2141
Wayne Harding 957-9769 Danielle Zion 957-2140
David Duff 957-8979 Marv Eisner 957-2138
Patricia Spice 952-8984 Annemarie Humenuk 957-2134
Mickey Sarazin 957-3499 Jack Szeszycki 957-2135
Frank Gillman 952-9853 Sandra Short 957-2136

SECTION DU FINANCEMENT, TECHNICAL PUBLICATIONS SECTION
ET DES RÉGIMES
Tim Bryant, A/Chief 957-2052
Jean-Guy Aubé, Chief 957-8963 Fay Bisailion 952-1361
Ghislain Martineau 957-8962 Gwen Moore 952-1506
Adèle St-Amour 952-1764 Rick Primeau 957-2060
Louise Roy 957-2092 Jim McFarlane 957-2087

FIELD LIAISON & TECHNICAL
PROJECTS SECTION
Paul Lynch, A/Chief 957-8973
Maureen Shea-
DesRosiers 957-8961
Ron Lefebvre 957-0682
Shirley Sarrazin 957-2137
Jackie Page 957-0682

RESOURCES, REORGANIZATIONS AND PARTNERSHIPS AND TRUSTS DIVISION INTERNATIONAL DIVISION

R. Biscaro, Mike Hiltz,
Director 957-8970 Director 957-2113
Celine Charbonneau Nicole Murdock,

A/Div.Sup.Clerk 957-8969 Div.Sup.Clerk 957-2112

PARTNERSHIPS SECTION CORPORATE REORGANIZATIONS
SECTION

Dave Holtz, Chief 957-3493 Mark Symes, Chief 957-2091
Cal Brown 957-8980 Benoit Mandeville 957-2093
Frank Fontaine 957-4364 Jorge Teixeira 957-2095
Allan Nelson 957-9768 Dave Palamar 957-2127
Bruce Dodd 957-8954 Dan Yuen 957-8967

SECTION DES RESSOURCES INTERNATIONAL SECTION
DES SOCIÉTÉS ET PERSONNES
ET DES FIDUCIES Ken Major, Chief 957-2124
Olli Laurikainen 957-2116
Marc Vanasse, Chie 957-8978 Greg Middleton 957-2122
Alain Marchand 957-8981 Simon Leung 957-2115
Johanne Desparois 957-8982 Jane Stalker 957-2118
Michel Lambert 957-2097 David Senécal 957-9796

RESOURCE INDUSTRIES SECTION SECTION DES RÉORGANISATION
DES SOCIÉTÉS ET
OPÉERATIONS INTERNATIONALES

John Chan, A/Chief 957-8976 Alain Godin, Chief 957-2128
Al Cameron 957-8975 Marc Séguin 957-2129
Peter Lee 957-8977 Carole Pronovost 957-2126
Art Seidel 957-8974 Robert Gagnon 957-2108
Denise Dalphy 957-9231 Phil Diguer 957-2094

TRUSTS SECTION REORGANIZATIONS &
INTERNATIONAL SECTION

Theresa Murphy, A/Chief 957-8283 Ted Harris, Chief 957-2114
Catherine Bowen 957-8585 Jim Wilson 957-2123
Gord Kauppinen 957-4363 Tim Kuss 957-2117
Lena Holloway 957-2104 V. Plant 957-2120
George Keable 957-2046

TECHNICAL REVIEW &
REMISSIONS SECTION

Bill McCcColm, Chief 957-9226
Martine Filiatrault 952-5803
Sandy Parnanzone 957-9232
Kevin Donnelly 957-2082
Jacques Grisé 957-2059