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.
Revenue Canada Round Table Table Ronde de Revenu Canada* Robert M. Beith, CA; Carole Gouin-Toussaint, CGA; Robin J.L. Read, CA; Kenneth R. Warren, CGA
Robert M. Beith, CA. Senior adviser, Fiscal Policy and Technical Interpretations, Revenue Canada, Taxation, Ottawa. CA (1960) Institute of Chartered Accountants of Scotland; CA (1963) Institute of Chartered Accountants of Alberta. Has served in a number of senior management positions in Revenue Canada, Taxation, including positions in the Tax Avoidance Division and Appeals Branch, and as director general, Corporate Rulings Directorate.
Carole Gouin-Toussaint, CGA. Director, Manufacturing Industries, Partnerships and Trusts Division, Rulings Directorate, Revenue Canada, Taxation, Ottawa. BBA (1974) University of Quebec in Montreal; CGA (1978). With Revenue Canada since 1974, serving in a variety of positions including positions in the Legislative and Intergovernmental Affairs Branch.
Robin J.L. Read, CA. Director general, Rulings Directorate, Revenue Canada, Taxation, Ottawa. Member of the Institute of Chartered Accountants of Ontario and of the Institute of Chartered Accountants in England and Wales.
Kenneth R. Warren, CGA. Acting director, Audit Technical Support Division, Audit Directorate, Revenue Canada, Taxation, Ottawa. BComm (1971) Memorial University of Newfoundland; CGA (1973). Has served in a number of positions in Revenue Canada audit function and in the Legislative and Intergovernmental Affairs Branch since 1971. Former director of the Audit Applications Division, Audit Programs Directorate.
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
Partnerships
Q.1 Withholding Tax on Dividends Paid to a Non-Canadian Partnership
Where a partnership consisting of one Canadian and one US member owns all of the shares of a Canadian corporation, will the dividends paid by the corporation to the partnership qualify for the 10 percent withholding tax rate allowed by article X of the Canada-US tax convention?1
Department's Position
When a Canadian company pays a dividend to a partnership with Canadian and US partners, the department considers that the partnership is a conduit and that each of the individual partners receives his or her proportionate share of the dividend income. Accordingly, the US resident would be granted the general relief (15 percent rate) afforded by article X of the Canada-US tax convention. If the US resident is a corporation, it is considered not to have an ownership interest in the voting stock of the company paying the dividends but rather to own a partnership interest; thus, the corporation is not entitled to the 10 percent rate.
Q.2 Production Income for Purposes of Section 66.7
Paragraph 1 of Interpretation Bulletin IT-138R 2 states that income flowing through a partnership retains its character. Does a partner's share of production income from a partnership also retain its character as production income for the purposes of the successor rules in section 66.7 of the Income Tax Act?
Department's Position
Yes. This would be so according to paragraphs 96(1)(f) and (g) of the Act.
Q.3 Two-Tiered Partnerships
In recent years, we have seen an increase in the use of two-tiered limited partnerships, especially with respect to real estate investments. This type of structure is fairly common in the United States. In response to question 23 of the 1981 round table,4 the department stated that it was reviewing the problems associated with two-tiered partnerships. What is the department's current position on this matter?
Department's Position
In 1981, the department was asked the following question: Partnership A, a member of partnership B, does not otherwise carry on an active business. If partnership B carries on an active business, does the department consider partnership A to be carrying on an active business?5 Although the department will carefully review the purpose for creating such a partnership arrangement, it will not generally deny active income treatment to partnership A solely as a result of the use of a two-tiered partnership.
Q.4 Personal Use of Partnership Property
A partner who is an individual contributes capital to a partnership which the partnership uses to acquire capital property necessary for its business. From time to time, the partner uses this property for personal purposes that are unconnected and unrelated to the business of the partnership. Are there any tax consequences to the individual partner arising from his or her personal use of the property where the partnership is not claiming any deductions for income tax purposes with respect to the capital cost or operating expenses of the capital property?
Department's Position
If the capital property is an automobile made available to the partner, a taxable benefit will be included in the partner's income pursuant to paragraph 12(1)(y). Depending upon the facts of the case, a partner may be deemed to be a limited partner pursuant to paragraph 96(2.4)(b). In such event, the partner's at-risk amount would be reduced by virtue of subsection 96(2.2). Finally, depending upon the circumstances of the case, when the allocation of profit between partners is unreasonable, the department may adjust the allocations pursuant to section 103. One of the considerations in determining the reasonableness of the profit allocation is the personal use of the partnership property by a partner.
Trusts
Q.5 Offshore Trusts
For the purpose of reducing the Canadian tax liability of an individual immigrating to Canada, a non-resident trust is established either for the benefit of the immigrant, his or her spouse, and their children or exclusively for the benefit of the spouse and children. The non-resident trust, which is exempted from the application of subsection 94(1) by virtue of subclause 94(1)(b)(i)(A)(III), will derive all of its income from assets that will be sold to the trust by the immigrant for fair market value consideration in the form of a non-interest-bearing promissory note payable on demand. The immigrant will be neither the settlor of the trust nor a trustee. Does subsection 56(4.1) as proposed to be amended by Bill C-186 apply in these circumstances?
Department's Position
Subsection 56(4.1) as proposed to be amended will apply to any income derived from the trust by the immigrant's spouse and/or children in a taxation year. Nothing in this response should be construed as the department's views regarding the application of any other provisions of the Act in respect of the arrangement described in this question.
Q.6 Unit Trusts
Subsection 108(2) indicates that a trust is a unit trust if, among other things, the issued units of the trust included ``units having conditions attached thereto that included conditions requiring the trust to accept, at the demand of the holder thereof and at prices determined and payable in accordance with the conditions, the surrender of the units.'' 1) What is the department's position with respect to the nature of the ``conditions''? 2) Is it possible for the trust to refuse the surrender of units for a period of time at the commencement of the trust or at any subsequent time? 3) How often do prices for the units have to be determined?
Department's Position
The securities commissions of the various provinces are primarily responsible for policing the issue of mutual fund units. Accordingly, the department will not, in general, view a particular unit that is issued under and in accordance with the rules and regulations of the securities commission responsible for the particular unit as failing to meet the requirements of subsection 108(2). Therefore, the ``conditions'' generally acceptable to the department will be those conditions that conform to the requirements of the appropriate securities commission.
Q.7 Interest of a Beneficiary in Property of a Trust: Part IV.1 and Part VI.1 Tax
At the 1990 round table,7 the department stated that where a corporation is a beneficiary of a trust, it is not connected with a corporation whose shares are owned by the trust for purposes of part IV tax, since the beneficiary does not own the trust property. Does the department take the same position for purposes of part IV.1 and part VI.1 tax? For example, assume that a person is the sole beneficiary of a trust that owns all the shares of a corporation. The trust receives a taxable dividend from the corporation and designates the full amount of the dividend in respect of the beneficiary such that the dividend is deemed by subsection 104(19) not to have been received by the trust and to be a taxable dividend received by the beneficiary. Will the beneficiary be considered to have a substantial interest, within the meaning of subsection 191(2), in the corporation?
Department's Position
A beneficiary of a trust does not own the shares of a corporation whose shares are owned by the trust. Furthermore, in order for a person to have a substantial interest in a corporation within the meaning of subsection 191(2), that person must be a shareholder of the corporation. For these reasons, unless the beneficiary owns shares of a corporation directly, the beneficiary cannot be considered to have a substantial interest in the corporation by virtue of subsection 191(2).
Q.8 Attribution Rules
Do either of the following situations fall within subsection 75(2)? 1) A person makes a loan to a trust and takes back a note therefor evidencing the loan. The note is non-interest-bearing and payable on demand. 2) A person sells income-producing property (for example, shares) to a trust. The purchase price for the property is not paid immediately but is evidenced by a non-interest-bearing note payable on demand. Would your answers change if the person making the loan or selling the income-producing property was also the settlor of the trust, the sole trustee of the trust, or both?
Department's Position
The applicability of subsection 75(2) cannot be based on a single factor but must be determined on the basis of all relevant terms and conditions of a trust and any loans or transfers of property to it.
1) In the first situation, a genuine loan to a trust will not, in and by itself, be considered to result in property being held in the trust on the conditions listed in paragraphs 75(2)(a) and (b), assuming that the loan is outside and independent of the terms of the trust. The department's views on the conditions to be met for a loan to be considered genuine are discussed in paragraph 8 of Interpretation Bulletin IT-258R28 and paragraph 3 of Interpretation Bulletin IT-260R.9
2) With respect to the second situation, other forms of indebtedness ---for instance, the unpaid purchase price of property sold to a trust---do not constitute loans and are not subject to the comments on loans. The terms of the indebtedness will, however, be relevant in determining whether a transfer of a property constitutes an unconditional bona fide sale. Where there is a bona fide sale, the fact that the purchase price is unpaid will not, in and by itself, result in the application of subsection 75(2). These positions will ordinarily apply whether or not the person making the loan or selling the income-producing property is the settlor of the trust, the sole trustee of the trust, or both.
Q.9 CCPC Status of a Corporation Owned by a Trust
Assume that all of the common shares of a private corporation that is incorporated and carries on business in Canada are owned by a trust. The trust has three trustees, all of whom are resident in Canada for income tax purposes. All issues are decided by a simple majority of the trustees. All of the beneficiaries of the trust, however, are non-residents for income tax purposes. On the assumption that the beneficiaries of the trust do not have direct or indirect influence that, if exercised, would result in control in fact of the corporation, pursuant to subsection 256(5.1), will the department consider the corporation to be a Canadian-controlled private corporation as defined in subsection 125(7) where 1) the trustees have full discretion over the allocation of income and capital among the beneficiaries, or 2) the trustees have no discretion over the allocation of income and capital among the beneficiaries?
Department's Position
As stated in paragraph 2 of interpretation bulletins IT-64R 210 and IT-243R3,11 where the non-resident beneficiaries have an absolute right to the shares under the terms of the trust, paragraph 251(5)(b) will apply to deem the beneficiaries to be in the same position in relation to the control of the corporation as if the beneficiaries owned the shares themselves. In such circumstances, the corporation will not qualify as a Canadian- controlled private corporation as defined in paragraph 125(7)(b). Where the non-resident beneficiaries do not have an absolute right to such shares under the terms of the trust, the fact that the non-resident beneficiaires of the trust do not have direct or indirect influence that, if exercised, would result in control in fact of the corporation pursuant to subsection 256(5.1) is inconclusive for purposes of determining whether the corporation is a Canadian-controlled private corporation. It must also be determined whether any other non-resident person, including the settlor of the trust, has such influence. Provided that the trustees in fact control the private corporation, the department will consider the corporation to be a Canadian-controlled private corporation as defined in paragraph 125(7)(b). The fact that the trustees have or do not have full discretion over the allocation of income and capital of the trust among the beneficiaries will not, in and by itself, prevent the corporation from qualifying as a Canadian-controlled private corporation.
Q.10 Interest-Free Loan to a Beneficiary
Since the department has discontinued its appeal of the decision in Cooper v. The Queen, will it confirm that it will not assess a taxable benefit under section 105 where a trust makes an interest-free loan to a beneficiary.
Department's Position
The court in Cooper decided that an interest-free loan made by a trust to a beneficiary did not result in a subsection 105(1) taxable benefit to the beneficiary. As indicated in question 22 of the 1990 round table,13 the department will apply this decision in similar situations.
Associated Corporations
Q.11 Subsection 256(1.4): Meaning of ``Permanent Disability''
Subsection 256(1.4) expands the scope of association where the parties are given particular options or rights. This provision does not apply to particular options or rights that become exercisable upon the death, bankruptcy, or permanent disability of an individual. ``Death'' and ``bankruptcy'' are terms having clear legal definitions. By contrast, ``permanent disability'' has no clear legal meaning. Does the department have a position on the accepted meaning of ``permanent disability'' for purposes of this exception to subsection 256(1.4)?
Department's Position
The question whether a permanent disability exists is one of fact that must be determined in each case, keeping in mind that existing case law supports the view that ``permanent'' is the antithesis of ``temporary'' and means more than ``prolonged.'' Considering the words ``permanent disability'' in subsection 256(1.4) in their context, not every permanent disability will qualify as a permanent disability for the purpose of this subsection. Nevertheless, where the parties to a shareholders' agreement have made a bona fide attempt to define ``permanent disability'' in their agreement, that fact will be viewed as significant by the department in determining whether a permanent disability exists.
Control of a Corporation
Q.12 Equal Ownership of Shares by Two Unrelated Individuals
Two unrelated individuals, (of5)A and (of5)B, each hold 50 percent of the only class of shares of a corporation (``the corporation''). 1) Is it the department's view that the corporation is necessarily controlled by the unrelated group of (of5)A and (of5)B, or is it possible that no person or group can be said to control the corporation? That is, do (of5)A and (of5) B ``act in concert'' to control the corporation simply because the consent of both is required, or does ``acting in concert'' to control a corporation entail some kind of common motive or shareholders' agreement? 2) If one party has a deciding vote by virtue of an office (for example, chair of the board) rather than by virtue of shareholdings, what is the effect (if any) on the locus of control?
Department's Position 1) It is possible that (of5)A and (of5)B do not constitute a group that controls the corporation. However, this determination can be made only after a review of all of the relevant facts in the particular situation. For one to conclude that (of5)A and (of5)B constitute a group that controls the corporation, there must exist a common link or interest between them (which must involve more than their mere status as shareholders). In other words, they must act in concert to control the corporation. The existence of a shareholders' agreement between (of5)A and (of5)B is not always prima facie evidence that they constitute a group. Whether the parties to any agreement constitute a group that controls the corporation depends on the terms of the agreement and any other relevant factors. The above comments are relevant in determining whether a group of persons controls a corporation for purposes other than those of the association rules contained in section 256. Paragraph 256(1.2)(a) provides a special rule for purposes of subsections 256(1) to (5).
Paragraph 23 of Interpretation Bulletin IT -64R214 states, Where the situation is that the voting shares of a corporation are divided evenly between two persons, the fact that the chairperson of a shareholders' meeting may have the right to cast a deciding vote thereat does not give that person control of the corporation, since the deciding vote is by reason of the position as chairperson of the meeting and not by virtue of ownership of voting shares. However, the above comment does not deal with the extended concept of control in subsection 256(5.1). In the situation described above, the corporation generally will be ``controlled, directly or indirectly in any manner whatever,'' within the meaning assigned to that expression in subsection 256(5.1), by the holder of the deciding vote.
Shares and Shareholders
Q.13 QSBC Shares: Active Business Carried On ``Primarily in Canada''
Under the definition of a qualified small business corporation share in subsection 110.6(1), one of the requirements is that assets be used in an active business carried on ``primarily in Canada'' (subparagraph (c)(i) of the definition). Although the department has interpreted ``primarily'' to mean greater than 50 percent, there is little or no guidance given concerning the basis on which this 50 percent should be measured (that is, by reference to assets, sales, employees, and the like). Can the department provide general guidance on how ``primarily'' should be measured and which basis should be used in various situations?
Department's Position
In paragraph 8 of Interpretation Bulletin IT-147R 215 and paragraph 5 of Interpretation Bulletin IT-486R,16 the department interprets the term ``primarily'' to mean principally, chiefly, or greater than 50 percent; however, whether or not an active business is carried on primarily in Canada is a question of fact. Factors such as the type of business, sales, net profit, number of employees, gross assets, and net assets are taken into account in determining whether a corporation's business is being carried on primarily in Canada. The department has no set guidelines on which factors to use in particular situations since all the circumstances must be considered in deciding each case.
Q.14 QSBC Shares: Fair Market Value of Assets Test
A Canadian-controlled private corporation owns as its sole asset a 50 percent interest in a general partnership. Sixty percent of the fair market value of the assets of the partnership is attributable to assets used in an active business carried on primarily in Canada at the current date and for the prior two years. Are the shares qualified small business corporation shares at the current date as defined in subsection 110.6(1)?
Department's Position
The definition of a qualified small business corporation share in subsection 110.6(1) requires that, at the determination date, the shares be shares of the capital stock of a small business corporation. The definition of a small business corporation in subsection 248(1) includes a corporation that is a Canadian-controlled private corporation all or substantially all of the fair market value of the assets of which is attributable to assets that were used in an active business carried on primarily in Canada by the corporation or a related corporation. When a corporation has a partnership interest as its sole asset, it is the fair market value of the partnership's assets that should be used in determining whether all or substantially all of the corporation's assets are used in an active business. The department has generally interpreted the phrase ``all or substantially all'' to mean 90 percent. In the scenario described above, where only 60 percent of the fair market value of the assets of the partnership is attributable to assets used in an active business carried on primarily in Canada at the determination date, the 90 percent test will not be satisfied. The corporation will not be a small business corporation, and its shares will not be qualified small business corporation shares.
Q.15 Shareholders' Agreement: Term Preferred Shares
Shareholders' agreements may include provisions that specify that a shareholder wishing to sell his or her shares may do so only if the same offer is made by the prospective purchaser to the other shareholders. The rights thus provided are often referred to as ``piggyback rights.'' Does the provision of such rights in a shareholders' agreement cause the shares to be term preferred shares?
Department's Position
It is a question of fact whether provisions of a particular agreement in respect of a share cause the share to be a term preferred share. This question can be resolved only by an examination of the particular share rights and agreement. In general, however, the wording of subparagraphs (a)(i) and (ii) of the definition of ``term preferred share'' in subsection 248(1) may be broad enough to include a share with such ``piggyback rights.''
Q.16 Redeemable/Convertible Preferred Shares
Assume that a shareholder holds fixed redemption amount preferred shares that are convertible into common shares. There are no related parties involved in the conversion, and the conversion ratio was set so that, immediately after the issuance of the preferred shares, any conversion would have been made solely for common shares of the same corporation having a fair market value equal to, or less than, the fair market value of the preferred shares. If at the time of conversion the common shares have a fair market value greater than the fixed redemption amount of the preferred shares, will the excess be treated as a subsection 15(1) benefit to the shareholder at that time?
Department's Position
It is a question of fact whether a benefit has been conferred on a shareholder. Given the assumptions stated in the question, and provided that the preferred shares were acquired at fair market value, the subsequent conversion of the preferred shares into common shares, at a time when the common shares had a fair market value greater than the fixed redemption amount of the preferred shares, would not, in and of itself, ordinarily result in the excess being treated as a subsection 15(1) benefit to the shareholder at the time of conversion. Note that, where certain conditions have been met, subsection 51(1) provides for a deferral of tax in respect of the gain realized on the exchange of convertible shares or debt into other shares of the same corporation.
Q.17 Convertible Debentures
A corporation resident in Canada issues to a non-resident lender a debenture exchangeable at the option of the holder for shares of the issuer, on the basis of a formula using the most recent stock exchange trading prices. Upon the exercise of the exchange right by the debenture holder, the corporation may, at its option, either issue the requisite number of shares or pay cash of equal value to the debenture holder. The debenture holder cannot demand a cash payment by exercising the exchange right. Assuming that the debenture otherwise meets all of the requirements for the withholding tax exemption under subparagraph 212(1)(b)(vii), will it qualify for the exception in clause 212(1)(b)(vii)(E) as an obligation exchangeable into a prescribed security?
Department's Position
It is a question of fact in each case whether a share is a prescribed security as defined in regulation 6208 of the Income Tax Regulations. Provided that the share in question qualifies as a prescribed security, the fact that the borrower could, at its option, choose to pay cash to a lender that exercised its right to exchange the obligation for such shares would not cause denial of the relief provided by clause 212(1)(b)(vii)(E). The relief would not be available under an arrangement whereby the borrower could, in any circumstances, be obligated to pay cash in response to the exercise by the lender of an exchange right.
Q.18 Debentures Issued upon Reduction of Paid-Up Capital
A corporation issues shares for $100 and uses the proceeds in its business for an income-producing purpose. In a subsequent year, the corporation reduces the paid-up capital of the shares from $100 to $1 on a distribution of $99 of interest-bearing notes to the shareholders. Will interest on the notes be deductible under paragraph 20(1)(c)?
Department's Position
The minister of finance's announcement of December 20, 1990 concerning the notice of ways and means motion on interest deductibility17 contains a proposal to amend the Act to confirm the existing administrative treatment that applies to the deductibility of interest on borrowings made before 1992. Among other matters, the notice contains a proposal to amend the Act to confirm a deduction for interest on any money borrowed before 1992 that is used by a corporation to return capital to its shareholders. No deduction is proposed in the notice for interest payable on indebtedness incurred to return capital other than borrowed money. Therefore, the interest on the notes described in the question would not be deductible.
Q.19 Contribution to Capital of a Corporation
Is a contribution to the capital of a corporation by a shareholder for the purpose of funding the acquisition of a capital asset included in income under paragraph 12(1)(x)?
Department's Position
A payment made by a payer in respect of the acquisition of an interest in the recipient or its business or property is exempted from the application of paragraph 12(1)(x) by virtue of subparagraph 12(1)(x)(viii). It is a question of fact whether a contribution of capital by a shareholder to a corporation can reasonably be considered to have been made for the purpose of acquiring such an interest. To make such a determination, it is necessary to consider the commercial nature of the transaction, including the attributes of any shares acquired by the payer.
Q.20 Section 85: Disposition of Property to a Corporation
If a taxpayer transfers debt or shares of a taxable Canadian corporation to that corporation in exchange for shares of that corporation, does the department accept that the taxpayer has disposed of the transferred property to the corporation for the purposes of section 85?
Department's Position
Provided that any securities issued in exchange for the transferred securities have sufficiently different rights that a disposition occurs, the department is of the view that the disposition is to the corporation.
Q.21 Section 85: Dispute over V-Day Value
Paragraph 14 of former Information Circular 76-19R18 provided that ``where the taxpayer makes a reasonable effort to determine the V -Day value . . . the Department will adjust the agreed amount.'' Information Circular 76-19R219 does not contain this paragraph. In the light of this deletion, will the department now insist on an amended election, including the payment of the applicable penalty, if there is disagreement on the valuation-day (V-day) value of the property transferred?
Department's Position
Effective June 15, 1990, Information Circular 76-19R was cancelled and replaced by IC 76-19R2. The comments contained in the former information circular regarding V-day valuation differences no longer apply. The department's current policy with respect to amendments, as stated in IC 76-19R2, is limited to the correction of clerical errors, omissions, and oversights. Hence, if a transferor wants to avoid any unintended tax consequences of a section 85 election, an amended election and the payment of the penalty are required.
Q.22 Application of Section 87 When a Shareholder Dissents from Amalgamation
Will the department confirm that the rules of subsection 87(2) apply to an amalgamation in which a shareholder of a predecessor corporation receives cash in lieu of a fraction of a share of the amalgamated corporation or pursuant to the exercise of a statutory right to dissent from the amalgamation?
Department's Position
Where a shareholder of a predecessor corporation who is entitled to only a fraction of a share of the new corporation formed as a result of an amalgamation, or a shareholder who dissents from the amalgamation, receives cash or other consideration in lieu of that fraction of a share or all of his or her shares, as the case may be, the provisions of section 87 will be applied to the amalgamation.
Q.23 Payment of Balance of Capital Dividend Account on Redemption of a Shareholder's Shares
In the department's view, can a corporation pay all of the balance of its capital dividend account to one shareholder on the redemption of that shareholder's shares or is each shareholder of a corporation entitled to a proportionate share of the corporation's capital dividend account?
Department's Position
Where the corporation redeems the shares owned by only one shareholder and the provisions of subsection 83(2.1) are not applicable, the corporation can pay the balance of its capital dividend account to that one shareholder. Subsection 83(2.1) will apply where the series of transactions includes an acquisition of shares one of the main purposes of which is to acquire a right to a capital dividend. Where the provisions of subsection 83(2.1) apply, the capital dividend will be deemed to be a taxable dividend.
Q.24 Collateral Security Given by a Corporation in Respect of a Shareholder's Debt
Does the department have a position on the question whether a benefit arises when a corporation allows its property to be used as collateral security for the debt of a shareholder? If a benefit does arise in these circumstances, how will the amount of the benefit be determined?
Department's Position
It is a question of fact whether or not a shareholder receives a benefit when a corporation's property is used as collateral security for the shareholder's debt. One method of calculating the benefit is to compare the difference between the interest rates charged with and without the corporation's collateral security. This benefit should be included in the shareholder's income pursuant to subsection 15(1). For further comments, see the department's response to question 62 of the 1986 round table.
Management Fees and Bonuses
Q.25 Deductibility of Intercorporate Management Fees
Provided that amounts paid to shareholders in their capacity as employees of a company meet the guidelines of the department given at the 1981 (question 42)21 and 1984 (question 82)22 round tables, the amounts will likely be deductible by the company. What is the department's position where the shareholders are employees of Holdco, which in turn provides management services to Opco? In a technical interpretation dated December 31, 1990, the Business and General Division noted that the above practice would not extend to intercorporate management fees. In order to be fully deductible by Opco, such fees must be reasonable in the light of the services actually rendered by Holdco through its employees. Assuming that it is the practice of Holdco to distribute corporate profits to its shareholders, would a management fee from Opco to Holdco be deductible should it be determined that the fee was not ``reasonable in the light of the services rendered''?
Department's Position
The department's administrative position set out at the 1984 round table does not appear to apply to Opco in a situation such as the one described above. Any fees and/or bonuses paid to corporate shareholder-managers by Opco must be reasonable in the light of the services actually rendered by Holdco through its employees in order to be fully deductible. The resulting profits of Holdco may be distributed to the shareholder-employees of Holdco where the general practice of the corporation is to distribute profits of the company to shareholder-employees in the form of bonuses or additional salary. If the management fee from Opco to Holdco was not reasonable in the light of the services rendered, the portion that was unreasonable would not be deductible by Opco.
Q.26 Shareholder-Manager Bonus Paid out of Investment Income or Capital Gain
What is the department's position on the situation in which a shareholder-manager receives a large salary/bonus some or all of which may be attributable to investment income rather than active business income?
Department's Position
As stated in question 42 of the 1981 round table 23 and question 56 of the 1990 round table, 24 there are no guidelines to determine the reasonableness of salaries/bonuses paid out of investment income. The amount, if any, that is considered to be reasonable will be based on the facts of each particular case.
Q.27 Unpaid Management Bonus: ``Right or Thing''
Is an unpaid management bonus a ``right or thing'' so as to allow the filing options stipulated in subsections 70(2) and (3)?
Department's Position
Provided that the employee has an enforceable claim at the date of death against the employer for the amount of the bonus declared, the value of that right at the date of death will be considered a ``right or thing'' within the meaning of subsection 70(2). Where, however, the employer has a contractual obligation to pay a bonus annually or on some other periodic basis, but the bonus for the period has not been declared as at the date of death, the amount is considered to be a periodic payment of remuneration taxable under subsection 70(1).
Pre-Incorporation Contracts
Q.28 Reporting of Income and Timing of Income Recognition
Section 21(2) of Ontario's Business Corporations Act, 198225 indicates that a corporation may, within a reasonable time after it comes into existence, adopt an oral or written contract made on its behalf before it came into existence. Section 21(2) provides that, upon the adoption of the oral or written contract, the corporation is bound by the contract and is entitled to its benefits as if the corporation had been in existence at the date of the contract. 1) What is the department's position in respect of the reporting of pre-incorporation income when section 21 of the OBCA is operative? If the income may be reported by the corporation, will the small business deduction be allowed? 2) What is the timing of the income recognition---that is, is it after the date of incorporation? Will the department extend the 53-week fiscal year requirement if income is recognized prior to incorporation?
Department's Position
As stated in paragraph 2 of Interpretation Bulletin IT -454,26 the department's interpretation is as follows: 1) Any income earned before the adoption of the contract by a corporation becomes the income of the corporation in its first fiscal period. A Canadian-controlled private corporation can claim the small business deduction in respect of any pre-incorporation income earned that represents active business income. 2) The 53-week period need not be extended, since the pre-incorporation income is reported in the corporation's first fiscal period. It should be noted that where the fiscal period is less than 12 months or 51 weeks, any provisions of the Act that require adjustments for short fiscal periods will apply.
Leases
Q.29 Unamortized Leasehold Inducements
Assume that a landlord pays a leasehold inducement to a non-anchor tenant and amortizes the amount of the inducement over the term of the initial lease. Before the lease expires, however, the landlord sells the land and the building in which the tenant is situated. Is the remaining unamortized balance of the leasehold inducement payment deductible by the landlord in the year the property is sold?
Department's Position
Paragraph 7 of Interpretation Bulletin IT-417R27 states that, provided that the landlord made the payments in the ordinary course of his or her business of property rental and where, in a particular taxation year, an amortization period is terminated or shortened by some previously unforeseen event, the unamortized amount may be written off in that year or over the remaining period to which the expense can reasonably be considered applicable, as the case may be. In some cases, inducement payments are made, outside the ordinary course of the landlord's rental business, to facilitate the sale of a building by increasing its occupancy rate. The unamortized amount of such inducements may, depending on the facts, form part of the costs of disposition of the building.
Intrafirm Financing
Q.30 Guarantee by a Subsidiary of the Foreign Parent's Loan Obligations
Suppose that a Canadian subsidiary of a foreign parent guarantees the loan obligations of the parent. 1) Will the department impute a benefit under subsection 15(1) such that subsection 214(3) will apply? 2) If the answer to (1) is affirmative, what will be the quantum of the benefit? 3) Will the department seek to impute income to the Canadian subsidiary under subsection 69(3)?
Department's Position
1) Subsection 15(1) would apply to any benefit conferred on the parent if part I of the Act were applicable to non-residents, so that subsection 214(3) will apply to the benefit.
2) The amount of the benefit is a question of fact and can be decided only on a case-by-case basis.
3) Subsection 69(3) will apply to deem the amount that would have been reasonable in the circumstances, if the corporations had been dealing at arm's length, to have been received or receivable by the Canadian subsidiary.
Specified Investment Business
Q.31 Characterization of Interest Income
A corporation owns buildings whose fair market value is $20 million and public corporation bonds whose value also is $20 million. The corporation employs more than five full-time employees. Because of the nature of the assets, a very large majority of the employees' time is devoted to administration of the buildings. The corporation has only one place of business and keeps a single account book for its building activities and its activities relating to the ownership of the bonds. Does the interest income constitute income from a specified investment business (paragraph 125(7)(e))?
Department's Position
Assume that the corporation's income from administering its buildings is income from the operation of a business whose main purpose is to earn property income---that is, rent. If the activities relating to the ownership of the bonds are an integral part of the business that generates the property income, the corporation is not operating a specified investment business, since more than five full-time employees are assigned to the operation of this business. Consequently, its rental and interest income are active business income. However, if the activities carried on by the corporation constitute a separate business, the resulting interest income is income from a specified investment business, since the exception in subparagraph 125(7)(e)(i) relating to the number of employees is not applicable. The department can make such a determination only after an examination of all the facts and circumstances of a specific case.
The degree of correlation, interconnection, or interdependence between each group of activities carried on by the corporation will be used as a basis for determining whether it is operating one or more businesses. Interpretation Bulletin IT-206R28 provides additional explanations to assist in the determination whether a taxpayer is operating more than one business simultaneously. Finally, if the activities relating to the ownership of the bonds are not an integral part of the property business and do not constitute a business, the interest income will be from a source---that is, property.
Scientific Research and Experimental Development
Q.32 Section 37: Meaning of ``Related to the Business'' and Flowthrough of Deductions to Limited Partners
1) What is the meaning of the phrase ``related to the business'' as used in section 37? 2) Does section 37 permit the ``flowthrough'' of deductions for expenditures on scientific research and experimental development to limited partners in a partnership that carries on a research business?
Department's Position
1) The determination of a taxpayer's business and whether or not an expenditure on scientific research and experimental development is related to that business is generally a question of fact that must be determined on a case-by-case basis. Paragraph 37(7)(d) provides that references to scientific research and experimental development related to a business include any scientific research and experimental development that may lead to an extension of that business. For scientific research and experimental development to be related to a business carried on by a taxpayer, there must be some interconnection or link between the taxpayer's business and the scientific research and experimental development expenditures. This requirement will generally be satisfied when the results of the scientific research and experimental development, if successful, have a direct and beneficial application in the business that is carried on by the taxpayer in the year. However, expenditures for scientific research and experimental development activities carried out in the year by a taxpayer that derives all or substantially all of its revenue from performing scientific research and experimental development under contract for fees or from the sale of rights arising out of scientific research and experimental development that it carries out are considered to be expenditures that are related to the business of performing scientific research and experimental development. In addition, subsection 37(1.1) provides an exception for scientific research and experimental development performed by a related corporation.
2) As indicated in question 38 of the 1989 round table,29 the answer is negative. Expenditures on scientific research and experimental development incurred by a partnership must be claimed by the partnership, as noted in paragraph 96(1)(e.1). One should also note that paragraph 96(1)(g) excludes the partnership's section 37 deductions from the amount of loss allocated to the limited partners.
Manufacturing and Processing Profits Tax Credits
Q.33 The Halliburton and Nowsco Decisions
What are the department's guidelines for assessments of manufacturing and processing profits tax credits in the light of the Halliburton 30 and Nowsco31 decisions?
Department's Position
The Federal Court of Appeal dismissed the department's appeal in both Nowsco and Halliburton. At issue in these cases was whether well site services of fracturing, acidizing, and cementing fell within the meaning of ``processing in Canada of goods for sale'' for the purposes of paragraph 125.1(3)(a). The court concluded strictly on the facts of the situation that the taxpayers processed goods to the client's specification, which were then utilized in performing the specialized services. Accordingly, the taxpayers qualified for certain manufacturing and processing incentives. The court stressed the unique fact situation that distinguished Nowsco and Halliburton from other service cases. The judgments in these two court cases are applicable only to taxpayers in the oil or gas well service industry with identical operations.
Losses
Q.34 Inventory Losses on Shares
A taxable Canadian corporation holds in inventory more than 5 percent of the common shares of another such corporation, which shares pay dividends annually. In each of years 1 through 4, the fair market value of the shares declines, and the shareholder recognizes their decline in value as an inventory loss contemplated by subsection 10(1). 1) Subsection 112(4) applies only in a taxation year in which the shareholder realizes a loss ``arising from transactions with reference to the share.'' Therefore, it appears that the inventory losses in years 1 through 4 will not be denied under subsection 112(4). Is this correct? 2) Since subsection 112(4) denies a loss arising from such transactions only on an eventual disposition of the shares in year 5, will the application of subsection 112(4) be restricted to the year 5 accrued loss?
Department's Position
1) Although subsection 112(4) applies only where there is a transaction (such as a sale or other disposition) with reference to the particular shares, subsection 112(4.1) will apply to the valuation of the shares for the purpose of subsection 10(1) and any regulations made thereunder. This could result in a reduction of the ``inventory loss'' referred to above.
2) When the shares in question are ultimately disposed of, subsection 112(4) will apply to any loss that may arise from the transaction. In the computation of ``the amount of (this) loss otherwise determined,'' the carried value of the inventory will reflect any adjustments previously required by subsection 112(4.1). The interaction of subsections 112(4) and (4.1) is discussed in paragraph 9 of Interpretation Bulletin IT-328 R232 and is illustrated by the example in the appendix of the bulletin.
Q.35 Business Investment Loss
Under subparagraph 39(1)(c)(iv), a business investment loss is not recognized when the property disposed of is a debt owed to a corporation by a small business corporation with which the lender does not deal at arm's length. 1) At what point must the non-arm's-length relationship be examined? 2) Assume the following facts: a) Mr A owns all the shares of Gesco, which in turn owns all the shares of Opco, a small business corporation. b) In addition, an interest-free debt is owed to Gesco by Opco. c) In a bona fide transaction, Gesco disposes of all the shares of Opco to a person with whom it deals at arm's length. As a result of this transaction, and as a condition of the sale of the shares, the debt owing to Gesco is settled for an amount less than its adjusted cost base.
Will the department recognize the capital loss incurred on the sale of the debt as a business investment loss, despite the non-arm's-length relationship between Gesco and Opco immediately before the sale of the Opco shares?
Department's Position
1) In general, the point at which it must be determined whether the corporations are trading at arm's length for the purposes of subparagraph 39(1)(c)(iv) is the point at which a disposition of the debt triggers the application of paragraph 39(1)(c).
2) Provided that the conditions specified in paragraphs 6 and 10 of Interpretation Bulletin IT-239R233 are met, the department will not treat the loss resulting from the disposition by Gesco of the debt owing to it by Opco as being nil.
Large Corporations Tax
Q.36 Treatment of Writedowns in Respect of Capital Assets in Calculation of Taxable Income
In certain situations, taxpayers may reduce the carrying costs of assets on their balance sheets to fair market value for accounting purposes in accordance with generally accepted accounting principles. If the writedown is in respect of capital assets (such as shares or debts of other corporations which are held as capital property), an adjustment is required in the calculation of taxable income since such writedowns are not allowed as a deduction for tax purposes. Is the writedown required to be treated as a reserve and hence included in the calculation of a corporation's capital for the purpose of part I.3 tax?
Department's Position
In a situation in which there has been a decline in the value of an asset of the type described, which is not a temporary decline, and the carrying cost of the asset has been reduced in accordance with generally accepted accounting principles to reflect that reduced value, the writedown is not considered to be a ``reserve,'' as that term is defined in subsection 181(1), of the corporation for the year. The determination whether such a decline in value is temporary or otherwise depends on the facts in the particular case.
Q.37 Interest in a Joint Venture
Assume that a corporation has an interest in a joint venture. The joint venture's principal business is the development of real property. Such property is secured by a mortgage. The corporation accounts for its investment in the joint venture using the equity method. 1) Is the corporation required to include its pro rata share of joint venture liability in its taxable capital? 2) Since the corporation is prohibited from using the equity method of accounting for purposes of part I.3 tax, is the company required to include in its taxable capital its pro rata share of earnings accumulated in the joint venture? 3) Would the answer to (2) be different if the corporation had an interest in a partnership?
Department's Position
1) It is not the joint venture but rather the joint venturer that owns the subject property and is liable for any associated mortgage. If a corporation is singularly liable for any indebtedness related to a joint venture, the full amount of that indebtedness will be included in the calculation of its capital. Likewise, if the corporate joint venturer is jointly liable with other co-venturers, only its appropriate portion of the indebtedness will be so included. The amount of indebtedness for which any particular joint venturer is liable will not be dependent upon any income or profit-sharing arrangement among the participants.
2) The earnings of the joint venture will be included in the calculation of the capital of the corporate joint venturer on the same basis as that used in reporting earnings for the purposes of part I of the Act. 3) No. As in the situation with a joint venture, the earnings will be included in the calculation of the capital of the corporate partner on the same basis as that used in reporting earnings for the purposes of part I of the Act.
Property Held as an Adventure in the Nature of Trade
Q.38 Inventory Writedown: The Weatherhead Decision
In the light of the recent decision in the Weatherhead case, what is the department's assessing position with respect to an inventory writedown to fair market value on property held as an adventure in the nature of trade?
Department's Position
The department has appealed the decision in the Weatherhead case to the Federal Court---Trial Division. Pending a decision by the court, the department's position remains unchanged: a taxpayer is not entitled to an inventory writedown to fair market value on property held as an adventure in the nature of trade.
Subsection 18(2) Deduction of Interest and Property Taxes
Q.39 Calculation of Revenue from Land
Subsection 18(2) limits the deduction of interest and property taxes in respect of the acquisition and holding of land except to the extent that ``the taxpayer's gross revenue, if any, from the land for the particular year exceeds the aggregate of all amounts deducted in computing his income from the land for the year.'' 1) The word ``land'' is both singular and plural in connotation. Does the department's definition of land include all such land so as to permit net revenues from all land in aggregate to be used to offset interest and taxes in aggregate? 2) Are the proceeds of sale of a) a portion of the original contiguous tract and b) a separate tract of ``land'' included in ``gross revenue, if any, from the land''?
Department's Position
The department has responded to these questions previously at the 1989 Corporate Management Tax Conference.
1) The revenues that relate to a particular parcel of land may be included only in computing the net income from that parcel of land and not included or applied in the net income of any other parcel of land that the taxpayer may own. To the extent that there is insufficient income from that particular parcel of land to offset the applicable expenses, the remainder must (subject to the provisions of paragraph 18(2)(f)) be added to the cost of that parcel of land.
2) The phrase ``gross revenue, if any, from the land'' in subsection 18(2) does not include revenue from sales of individual parcels severed from a large tract of land. As stated above, the proceeds from the sale of one parcel of land will not be considered to be revenue related to ownership of any other parcel of land.
Purchase of Bond Interest Coupons
Q.40 Purchase by an RRSP or by a Non-Resident
Government of Canada bonds are acquired by an investment dealer and deposited with a custodian. The custodian sells the beneficial ownership of the interest coupons and the principal residue on an unbundled basis to arm's-length purchasers. 1) Will the interest coupon constitute a qualified investment for a purchaser that is a registered retirement savings plan (RRSP)? 2) Where a non-resident acquires the interest coupon at a discount from its face amount, will any portion of the face amount paid to it on the maturity of the coupon be subject to part XIII tax?
Department's Position
1) Where such bonds are qualified investments for an RRSP, interest coupons that are detached from the bonds and sold separately are considered to be similar obligations and will likewise be qualified investments.
2) The proceeds that a non-resident receives on maturity of such coupons are interest and are exempt from part XIII withholding tax by virtue of subclause 212(1)(b)(ii)(C)(I).
Sale of Assets
Q.41 Allocation of Income Where a Condition Precedent Exists
The department stated in question 70 of the 1987 round table36 that, in a property sale, income arising between the effective date and the closing date belongs to the vendor where a condition precedent exists. If the vendor and purchaser enter into a legally binding agreement that appoints the vendor as the purchaser's agent for this period, will the income belong to the purchaser? Would the answer be the same if no condition precedent existed?
Department's Position
The department's position remains as stated in the response given in 1987. As the disposition will not occur for tax purposes until the condition precedent is satisfied, any income arising before the transfer will not belong to the purchaser regardless of an agreement appointing the vendor as the purchaser's agent for this period. Any agreement purporting to give retroactive effect to the transfer is not effective for tax purposes. The date of disposition of property sold is the date on which beneficial ownership is intended to pass to the purchaser and the time at which the vendor has an absolute but not necessarily immediate right to be paid. Provided that the vendor is entitled to payment and beneficial ownership has been transferred, any income earned in the period between the effective date and the closing date must be recognized by the purchaser.
Deceased Taxpayer
Q.42 Loss Deemed on Transfer of Shares to a Corporation
Subsection 164(6) provides that where the legal representative of a deceased taxpayer has disposed of capital property of the estate within the first taxation year of the estate and the capital losses of the estate exceed the capital gains, the legal representative may elect to have those losses deemed to be losses of the deceased taxpayer for the year of death. Subsection 85(4) deems a loss on the disposition of shares by a taxpayer to be nil where, immediately after the disposition, the taxpayer or another person as specified in that subsection controlled the corporation to which the shares were transferred. 1) In view of the wording ``notwithstanding any other provision of this Act, the following rules apply'' immediately preceding paragraph 164(6)(c), if only some of the shares owned by an estate are disposed of so that the estate continues to control the corporation, will subsection 85(4) apply to deny any loss that might otherwise be realized upon redemption or purchase for cancellation of the shares, or will paragraph 164(6)(c) override? 2) If all of the shares held by the estate are disposed of to the corporation but the legal representative in a personal capacity continues to control the corporation by virtue of a beneficial ownership of controlling shares, will the loss realized by the estate be deemed to be nil by virtue of subsection 85(4)?
Department's Position
1) In the situation described, subsection 85(4) will apply to deem the loss to be nil. In order for subsection 164(6) to be applicable, there must be a capital loss (or a terminal loss as determined under subsection 20(16)). If a capital loss has been incurred but is deemed to be nil as a result of the application of subsection 85(4), there is no capital loss to which the rules set out in subsection 164(6) are applicable. In this regard, the phrase ``notwithstanding any other provision of this Act'' occurs after paragraph (b) of subsection 164(6) and it governs only the rules stipulated in paragraphs (c), (d), (e), and (f) of that subsection; it does not override subsection 85(4) or any similar provision of the Act for purposes of determining whether a capital loss has been incurred.
2) With respect to the second scenario, subsection 85(4) will not generally apply unless the corporation is, immediately after the disposition of its shares by the estate, controlled, directly or indirectly in any manner whatever, by the estate. The expression ``controlled, directly or indirectly in any manner whatever,'' has the meaning assigned by subsection 256(5.1).
Q.43 Election To Avoid Rollover Treatment Under Subsection 70(6)
Under subsection 70(6.2), the legal representative of a deceased taxpayer can elect not to have subsection 70(6) apply to ``any property'' of the deceased; that is, the property is deemed to have been disposed of at fair market value. 1) If the deceased taxpayer owned qualified small business corporation shares, can the legal representative make the election with respect to a portion of these shares? If so, are separate share certificates required? 2) What documentation is required for making the election? 3) In what circumstances will the department allow a legal representative to amend, vary, or revoke an election under subsection 70(6.2)?
Department's Position
1) A legal representative can make the election with respect to a portion of the shares. Separate share certificates are not required.
2) Although the department prefers to have a formal written statement prepared by the executor indicating that a subsection 70(6.2) election was made in the date-of-death return, it will accept, as evidence of the ``election,'' a return that has been prepared and filed reporting deemed dispositions of specific properties at fair market value. 3) The recently announced ``fairness package'' for taxpayers37 contains provisions whereby the minister has discretion to allow a deceased client's representative to amend, vary, or revoke a subsection 70(6.2) election. An amendment to, or a revocation of, an original election may be granted where it can be demonstrated that the original election causes unintended tax consequences. Such relief is not, however, extended to retroactive tax planning.
Strike Pay
Q.44 The O'Brien and Fries Decisions
On the basis of the decisions of the Federal Court---Trial Division in O'Brien and the Supreme Court of Canada in Fries, 1) Does the department consider the receipt of strike pay to be non-taxable to the recipient? 2) Where a labour organization that is exempt from tax under paragraph 149(1)(k) earns income from activities carried on by its members for which the members were not remunerated, will a subsequent distribution of the excess funds from this activity be income for tax purposes to the members?
Department's Position
1) A member of a union who is on strike or locked out need not include in income payments of the type commonly referred to as ``strike pay'' which are received from the union, even if the member performs picketing duties as a requirement of membership. On the other hand, payments made by a union to its members for services performed during the course of a strike are included in income if the member is employed by, or is a consultant to, the union, whether permanently, as a member of a temporary committee, or in some other capacity.
2) In the O'Brien case, the members of the various unions involved received supplemental strike benefits resulting from a distribution of profits from a commercial venture operated by the unions---benefits that the court held to be non-taxable. The facts of that case were unique; accordingly, the department cannot comment on a general application of the court's conclusions. In any similar case, the particular circumstances would have to be examined.
Employee Benefits
Q.45 Payment of Club Membership Dues
Has the department changed its policy as outlined in interpretation bulletins IT-148R2,40 paragraph 12 and IT-470R,41 paragraph 34 with respect to club dues?
Department's Position
The department's position on the taxable benefit implications for employees with regard to payment by their employer of membership dues for clubs providing dining, recreational, or sporting facilities has not changed from the position outlined in interpretation bulletins IT-148R 2 and IT-470R. Generally, these payments on behalf of employees are taxable benefits. Where, however, it is clearly to the employer's advantage for an employee to be a member of a club, the employee is not considered to have received a taxable benefit; in other words, there must be a purpose clearly advantageous to the employer's business underlying an employee's membership in a club. In this regard, the onus is on both the employee and the employer to demonstrate such advantage. The meaning of ``advantageous to the employer's business'' would not extend to what the department considers to be incidental benefits, such as an employee's being healthier and better able to perform his or her duties as a result of utilizing the facilities of an athletic club, the cost of which is borne by the employer. Although the interpretation bulletins make particular reference to social or athletic clubs and clubs ``the main purpose of which is to provide dining, recreational or sporting facilities for its members,'' business clubs would be subject to the same rules.
Q.46 Reimbursement of Relocation Expenses
Many commentators have suggested that the decision in the Splane case can be applied to the reimbursement of numerous other types of expenses. They have suggested that where an employee is transferred by his or her employer to a new job location and as a result incurs higher income tax costs in the new location, the so-called tax equalization payment made to the employee to reimburse him or her for the additional tax cost incurred is a non-taxable reimbursement, on the basis that the employee is no better off than he or she was before the job relocation. 1) Does the department accept that tax equalization payments are non-taxable? 2) Does the department accept that tax equalization payments should be treated on the same basis as other expenses and outlays related to job relocation, such as the amounts dealt with in Ransom, McNeill, Phillips, Côté, and Lao?
Department's Position
The department has appealed the Tax Court of Canada decisions in Phillips, Côté, and Lao at the Federal Court--- Trial Division. With respect to the Federal Court of Appeal decision in the Splane case, leave will not be sought to appeal to the Supreme Court. A reimbursement or an allowance for the payment of an employee's tax liability is taxable under either paragraph 6(1)(a) or (b).
Q.47 Employee Stock Options: Withholding Tax Requirements
Will the department comment on its policy with respect to the requirement of an employer to withhold taxes on stock option benefits enjoyed by employees, recognizing that in many circumstances it is not feasible for the employer to make withholdings from regular salary---for example, where the option is exercised very late in the calendar year?
Department's Position
Although stock option benefits are considered to be remuneration subject to source deductions, the department recognizes that requiring additional withholding from cash payments, such as normal salary, as a result of a stock option benefit can create hardship for the employee. This hardship will be created when either the benefit is very large in proportion to the individual's normal salary or the option is exercised later in the year. The department encourages employers to make withholdings from employees' cash remuneration to the extent possible, without imposing actual hardship. Where the non-cash benefit is the only form of income received from that employer, withholding becomes impractical and the employer will not be required to withhold tax on the amount of such benefits.
Non-Residents
Q.48 Subsection 212(1): Meaning of ``Credited''
Subsection 212(1) imposes part XIII withholding tax on a non-resident when an amount is paid or credited or deemed to have been paid or credited in satisfaction of certain amounts. What is the department's position regarding the meaning of ``credited'' for purposes of part XIII tax in non-arm's-length situations?
Department's Position
As set out in paragraph 5 of Information Circular 77-16R 3,48 question 17 of the 1984 round table,49 and question 84 of the 1986 round table,50 an amount is ``credited'' where a resident of Canada has set aside and made unconditionally available to the non-resident creditor an amount due to the non-resident. An amount is unconditionally available to the non-resident person when the non-resident has the immediate right to receive the amount---for example, when the amount is recorded in the payer's books and is payable on demand.
Q.49 Taxable Canadian Property: Shares of a Public Corporation
Subparagraph 115(1)(b)(iv) defines taxable Canadian property to include a share of the capital stock of a public corporation if at any time during the prescribed five-year period not less than 25 percent of the issued shares of any class belonged to the non-resident person, to non-arm's-length persons, or to a combination of these. Subsection 115(3) provides that, for purposes of section 115, a property described in subparagraphs 115(1)(b)(i) to (ix) is deemed to include an option in respect of such property (whether or not such property is in existence), and this rule is to be extended to include any interest therein by amendments in Bill C-18.51 Does the department apply the provisions of subsection 115(3) for purposes of the share ownership requirements of subparagraph 115(1)(b)(iv) in order to determine whether a share of a public corporation is taxable Canadian property?
Department's Position
For the purpose of determining whether the 25 percent ownership test in subparagraph 115(1)(b)(iv) has been met in respect of a particular non-resident person, the department treats options to acquire the property described in that subparagraph held by the non-resident person, or by persons with whom the non-resident did not deal at arm's length, as having been exercised. Options held by persons dealing at arm's length with the particular non-resident person would not be considered to have been exercised. An interest in a share held by the particular non-resident person or by persons with whom the non-resident did not deal at arm's length also would be included when applying the 25 percent test in subparagraph 115(1)(b)(iv).
Q.50 Back-to-Back Loans
Subparagraph 212(1)(b)(vii) contains no provision like subsection 18(6), which deals with back-to-back loans. Therefore, is an exemption from withholding tax available when a non-resident individual deposits funds with a non-resident financial institution that in turn loans funds to a Canadian corporation in respect of which the non-resident individual is a specified non-resident shareholder as defined in subsection 18(5)?
Department's Position
As was stated in the answer to question 3 at the 1989 round table,52 the deposit of funds by a non-resident person with a non-resident financial institution that lends those funds to a Canadian corporation not dealing at arm's length with the non-resident person could constitute an avoidance transaction. If it is an avoidance transaction, it will be considered to be a misuse of subparagraph 212(1)(b)(vii) and will be subject to subsection 245(2).
Q.51 Subsection 17(1): Determination of a ``Reasonable'' Rate of Interest on a Loan
What is the department's position concerning a reasonable rate of interest for purposes of subsection 17(1) on a loan denominated in foreign currency to a wholly owned foreign subsidiary where the exceptions in subsections 17(2) and (3) do not apply? In the case of such a loan denominated in foreign currency, is the ``interest thereon computed at a reasonable rate'' computed with reference to commercially available rates in the foreign jurisdiction or with reference to current Canadian rates?
Department's Position
Where ``the loan remained outstanding for one year or longer without interest thereon computed at a reasonable rate having been included in computing the lender's income,'' subsection 17(1) may apply. It is a question of fact whether interest has been computed at a reasonable rate, and all the factors involved in a particular financial arrangement have to be considered. Although reference may be made to commercially available rates in the foreign jurisdiction as well as to current Canadian rates, a reasonable rate of interest for the purposes of subsection 17(1) should, in the circumstances of a particular case, reflect the rate of interest that the lender would expect to receive if the loan were made on an arm's-length basis.
Q.52 Capital Gains Reserve
An individual who ceases to be a resident of Canada is, by virtue of subparagraph 40(2)(a)(i), no longer eligible to claim any capital gains reserve. In the situation where the non-resident individual subsequently repossesses the property upon which a capital gains reserve was previously claimed, are there any relieving provisions, administrative or otherwise, that would allow the result contemplated in section 79? Would the type of property (taxable Canadian property or other property) have any effect on the department's position?
Department's Position
The question addresses the different treatment of residents and non- residents with respect to capital gains reserves (non-residents may not claim such a reserve) and the result when there is a repossession to which section 79 applies in a year subsequent to the year in which an individual ceased to be a resident of Canada. In the case of a resident of Canada, paragraph 79(e) excludes a prior year's reserve from income in the year of repossession, and the resident is not taxed on the reserve claimed in the prior year. However, the cost to the resident taxpayer of the repossessed property under paragraph 79(f) is the amount of loan or receivable outstanding less the preceding year's reserve. In the case of a non-resident, the cost is higher---that is, the amount of the loan or receivable outstanding---but the non-resident is not able to claim the reserve from the previous year. It is assumed that this is a perceived inequity for which administrative relief is sought. There is no administrative relief, and if there is an issue, it is one of tax policy.
Revision of Interpretation Bulletins
Q.53 Status of IT-114: Discounts, Premiums, and Bonuses on Debt Obligations
What is the status of the revisions to Interpretation Bulletin IT -114,53 dealing with discounts, premiums, and bonuses on debt obligations?
Department's Position
The review of Interpretation Bulletin IT-114 has been deferred pending the outcome of the Department of Finance study relating to the deductibility of interest.
Q.54 Status of IT-233R: Leases
Interpretation Bulletin IT-233R54 outlines the circumstances in which a transaction structured as a lease will be viewed as an acquisition and disposition of property. We have been told that the department no longer requires a lessee to treat a transaction as a purchase rather than a lease. Apparently, the department is taking the position that all leases are operating leases. Is this correct? What is the current status of IT-233R?
Department's Position
It is not true that the department has taken the position that all leases are operating leases. The guidelines in Interpretation Bulletin IT -233R describing circumstances in which a transaction structured as a lease will be treated as an acquisition and disposition of property continue to represent the department's views on that matter. Additional general comments on this issue are reported in the 1988 Conference Report.55 The IT-233 R guidelines and the 1988 comments will be reflected in the revision of IT-233 R that is in process.
Audit and Verification
Q.55 Tax-Avoidance Examination Procedures
What steps do the department's tax-avoidance auditors follow when performing an in-depth examination? Do they prepare a position paper and, if so, what is Head Office's involvement in its preparation?
Department's Position
The comments contained in Information Circular 71-14R 356 with respect to a tax audit apply equally to a tax-avoidance examination except that a tax-avoidance examination is focused on a particular issue. Upon completion of the audit and after proposal letters have been sent and client representations considered and responded to, either a position paper or a T 20 audit report is prepared. Head Office's role is to provide advice upon request; therefore, it generally does not have any input into the preparation or content of the position paper or the audit report.
Q.56 Obtaining Information About a Tax Audit
Will the department release upon request the T20 and T401 reports or must the client proceed under the Privacy Act57 or the Access to Information Act?58
Department's Position
No formal request for a copy of the T20 audit or T401 appeals report is required. However, information pertaining to an audit or an appeal is generally not disclosed until, in the case of an audit, it is complete or, in the case of an appeal, the decision to vacate, vary, or confirm the reassessment has been made. For additional comments on the release of the T20 and the T401 reports, see question 29 of the 1989 round table.59
Q.57 Entitlement to Enhanced Capital Gains Deduction
What specific procedures are used by the department to verify a client's entitlement to the enhanced capital gains deduction in respect of qualified small business corporation shares or farm property? Does the department have a special division to review the T 657 forms?
Department's Position
On initial assessment, the T657 is checked to ensure that it is accurate and complete. Data capture fields, such as those used to facilitate the calculation of taxable capital gains, cumulative net investment loss, and the capital gains deduction, are updated. District office audit screeners can obtain computer-generated listings of persons who have claimed the capital gains deduction and they can select audits from these lists. The department does not have a special division to review the T 657 forms.
Reporting Requirements
Q.58 Controlled Foreign Affiliates; Beneficial Interest in a Non-Resident Discretionary Trust
Is there a requirement for an individual to disclose any controlled foreign affiliates or beneficial interest in a non-resident discretionary trust on his or her T1 tax return? What is the legal basis of the statements contained in Information Circular 77-9R?60
Department's Position
The statement contained in Information Circular 77-9R concerning the disclosure in a T1 return of a client's interest in a controlled foreign affiliate or a beneficial interest in a non-resident discretionary trust is intended to be a suggestion. Notwithstanding the foregoing, section 231.2 entitles the minister to obtain this information and, to that extent, provides a legal basis.
Information Exchange
Q.59 Provision of Information by Revenue Canada to Foreign Tax Authorities
1) Is it the department's position that section 231.2, in conjunction with the applicable tax treaty, allows the department to obtain information and documents for the purpose of responding to a foreign country treaty request when the request is made in the absence of any domestic interest? 2) Would the department's request for documents and information specify whether it is made for purposes of responding to a treaty request or would it state that it is made for the purpose of administration and enforcement of the Act?
Department's Position
1) The terms and conditions of the applicable treaty must be reviewed to determine whether a request can be made under domestic law for purposes of responding to a treaty partner's information request. In the case of Montreal Aluminium Processing Inc. et al. v. The Queen,61 the court concluded that the Income Tax Act, when read in conjunction with the Canada-US tax treaty62 and the Tax Convention Act,63 empowers the minister to issue a requirement for information sought by the US authorities in connection with their own taxation matters.
2) All requirements issued pursuant to subsection 231.2(1) are considered to be for a purpose relating to the administration or enforcement of the Act.
Accounting and Collection
Q.60 Review of Electronic Funds Transfer and Electronic Data Interchange
What is the status of the department's review of electronic funds transfer (EFT) and electronic data interchange (EDI) for corporate accounts?
Department's Position
Direct deposit will be available across Canada for 1991 individual returns. A pilot project for electronic funds transfer of payroll remittances has already started for two large employers and a pilot for payroll service companies will begin in June 1992. Pilots for payment to financial institutions are planned for the fall of 1992 and for corporate installments by 1993.
Q.61 Voluntary Tax Payments
Assume that a taxpayer has provided a waiver to the department in respect of a year for which no assessed tax remains unpaid with respect to the year as originally assessed. The department has, however, identified a contentious deduction, which it may disallow on a reassessment to increase taxes payable for the year in question. Although the taxpayer may successfully contest the reassessment in court, he or she may want to make a voluntary payment to cap the potential exposure to interest payments. 1) Will the department credit a voluntary payment made by the taxpayer as being on account of taxes not yet assessed or owing (and possibly never in future being owed) for the year subject to the waiver? In other words, will the taxpayer be given credit from the date of the voluntary payment if the department subsequently issues a reassessment for the year covered by the waiver? 2) If, on the other hand, the department does not ultimately issue a reassessment for the year, will the taxpayer receive refund interest from the date of the voluntary payment (made with reference to the year subject to the waiver) until the payment is actually refunded to the taxpayer or applied to another year or another liability?
Department's Position
1) The department will credit a voluntary payment as being on account of the year subject to the waiver effective from the date of payment.
2) If a reassessment is not issued in respect of a year for which a voluntary payment was received, refund interest will be paid in accordance with the Act generally from the date of the payment to the date of the refund. If the credit is applied to another year or liability, the transfer or offset will be effective as at the date of the payment and debit interest will be adjusted accordingly. This practice applies only with respect to a bona fide possibility of a reassessment.
Q.62 Temporary Delay of Collection Action
The department's pamphlet on collection policies states, ``If the Department agrees that you are unable to make payments towards your liability, collection action will be temporarily delayed until your financial situation improves.''64 In what circumstances will such a temporary delay be granted?
Department's Position
Generally, where the client does not have the ability to pay the liability and lacks the capacity to borrow or rearrange his or her financial affairs to pay the arrears, collection action will be temporarily delayed until the client's financial situation improves. Although each client's circumstances are unique and must be evaluated on their own merits, such delays have been granted in situations where the client has suffered a significant loss of income or cash flow owing to extraordinary circumstances such as layoff, unemployment, or a temporary business setback. When reviewing a client's ability to pay, the department takes into consideration incoming funds from all sources and reasonable expenses for non-discretionary items to arrive at an estimated disposable income that could be made available to facilitate either a payment arrangement or external borrowing. Examples of essential expenses include housing, food, utilities, health care, child care, support payments, transportation, taxes, union or professional dues, costs of maintaining employment, and costs associated with conducting business activities without jeopardizing the continuity of operations or the continued employment of a company's employees. Allowances are also made for such other expenses and costs as are reasonable in the light of the client's circumstances.
Q.63 Offset of Current Year's Losses Against Income Tax Arrears
Many businesses have recently experienced downturns, often resulting in severe cash flow problems and non-capital losses. Assume that the tax return that a taxpayer is about to file will generate a significant income tax liability. The taxpayer anticipates that the current year will result in a large non-capital loss, which, when carried back, will offset these arrears. Because of cash flow problems, the taxpayer wishes to rely on the anticipated loss carryback to resolve the liability, even though interest will accumulate at the prescribed rate. The taxpayer therefore files the return showing the taxes owing but includes no payment. How would Collections deal with this taxpayer? Would it be of assistance if the taxpayer attached an explanatory letter, a cheque for interest, or other documentation?
Department's Position
Clients are required to pay any remaining taxes, interest, or penalties upon filing the return giving rise to the income tax liability, and the department will request payment accordingly. Collection action will not be held in abeyance on the basis of anticipated losses. Clients who are experiencing financial problems to the extent that they are unable to pay their income tax arrears should contact the Collections Section of their local district taxation office upon filing their return, to conclude a mutually satisfactory payment arrangement. The client's financial situation will be taken fully into consideration in arriving at an arrangement based upon his or her ability to pay. Nevertheless, in a situation in which losses have been incurred and a request for a loss carryback has been received along with the appropriate income tax return or request for an adjustment, the department will normally hold collection action in abeyance on any outstanding arrears pending the outcome of the loss application adjustment, to the extent of the estimated decrease in taxes and interest payable. Similarly, where losses have been incurred for a taxation year ended and the filing of a loss carryback request is pending, the department will normally be willing to take the anticipated adjustment into consideration when concluding payment arrangements. Clients with arrears balances outstanding at the time of requesting a loss carryback adjustment should ensure that arrangements to resolve their accounts have been concluded with the Collections Section to avoid any misunderstandings.
Q.64 Offset of Credit Refund Interest Against Interest Paid on Arrears
What is the department's administrative practice with respect to the netting of credit refund interest received on a reassessment against non-deductible interest previously paid with respect to the same taxation year on prior reassessment?
Department's Position
The Act does not permit the netting of credit interest against arrears interest charged. Upon a reassessment, interest is recalculated on the basis of the revised liabilities for the taxation year and any overcharged amount of arrears interest is reversed. When an overpayment results from the reassessment, credit refund interest is allowed. This amount of refund interest is taxable in the year in which it is received; the amount of arrears interest, if any, is not deductible. Representations on this matter are being studied with the Department of Finance.
Q.65 Waiving of Installment Interest for First-Time Remitters
It appears that some of the district offices follow the administrative practice of waiving the requirement to pay installment interest in those cases in which installments should have been made but were not made owing to the fact it was the first year in which they were required (the taxpayer's first year of retirement, for example). Is this the department's position? If so, is there any administrative relief for those taxpayers who have not been granted this administrative concession?
Department's Position
It has long been the department's practice to grant a period of grace, a ``grace year,'' to all individuals for the first year in which they are required to make quarterly installments. Many taxpayers find that by the time they are informed on a notice of assessment that they are subject to the installment requirement, they have already missed the March 15 due date for making the first installment payment for the current year. To ensure that all ``new remitters'' have a reasonable opportunity to acquaint themselves with the installment process and to arrange their affairs to accommodate this requirement, the grace year practice has been extended to alleviate this problem. Commencing with the 1991 taxation year, and so long as the 1990 tax return has been filed on time, the first installment payment from taxpayers first required to remit in 1990 is not due until 30 days after the notice of assessment has informed them of the requirement. This information has been communicated to the taxpayers concerned by a message on the notice of assessment and by the mailing of the Instalment Guide for Individuals (First-Time Remitters) shortly after the mailing of the notice of assessment. Both the grace year and the extended grace year policies are applied automatically to all taxpayers required to remit tax by the installment method for the first time. If for some reason a taxpayer did not benefit from these concessions, he or she should get in touch with the local district office.
Q.66 Notice of Objection
1) What procedures are to be followed by an appeals officer who, while reviewing a notice of objection, discovers another issue unrelated to the matters disclosed in the notice? 2) Can the representative raise a new issue not in the notice of objection?
Department's Position
In reviewing a notice of objection, directly related or consequential matters will be considered. Also, obvious errors and mistakes will be taken into account. If the year is still open (not statute-barred), the department can raise other issues and, if noted, will refer them to Audit or Assessing for consideration. The taxpayer can raise any issue with respect to the year objected to even if it is not identified in the notice of objection.
Q.67 Proposed Subsection 220(3.1): Cancellation of Interest or Penalties
Bill C-1865 proposes in new subsection 220(3.1) to provide the minister with the discretion to waive or cancel part or all of a penalty or interest payable under the Act, should the situation warranty it. Since the ``fairness package''66 will not become effective until Bill C-18 receives royal assent, is the department willing to provide any administrative relief prior to the enactment of this provision?
Department's Position
Many of the fairness package provisions apply commencing with the 1985 taxation year. As a consequence, any requests for cancellation of interest or penalties brought to the department's attention can be held in abeyance until royal assent is received and dealt with after that time.
Q.68 Application for Reduction in Source Deductions
1) What is the current procedure in applying for a reduction in source deductions pursuant to subsection 153(1.1)? 2) What deductions will be considered favourably? 3) Is there a threshold amount below which a reduction will not be considered? 4) What criteria will the department take into account in considering an application?
Department's Position
1) The department does not wish to have tax deducted at source in excess of the probable tax liability for the year. The taxpayer, or the taxpayer's representative, must apply in writing to the local district taxation office, outlining the facts on which the request is based and attaching supporting documentation (receipts, agreements, and the like). Also, a request may be made by an employer where a ``bulk'' waiver is requested for employees contributing to a group registered retirement savings plan.
2) Virtually any credit or deduction that a taxpayer will be eligible to claim upon filing his or her personal income tax return, provided that satisfactory documentation exists to confirm entitlement, may form the basis for a request for a reduction of source deductions.
3) There is no minimum amount, so that smaller requests may be made to alleviate hardship.
4) The criteria that the department will take into account in considering an application for a reduction in source deductions are as follows: a) that the taxpayer can provide reasonable evidence that present tax deductions from his or her income are in excess of those required at year-end; b) that all required prior year's income tax returns have been filed; c) that no prior years' income tax arrears remain unpaid; and d) that a waiver request for current-year source withholdings does not relate to an item under appeal from prior years.
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1 The Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed at Washington, DC on September 26, 1980, as amended by the protocol signed at Ottawa on June 14, 1983 and the protocol signed at Washington on March 28, 1984 (herein referred to as ``the Canada-US tax treaty''). 2 Interpretation Bulletin IT-138R, January 29, 1979. 3 RSC 1952, c. 148, as amended by SC 1970-71-72, c. 63, and as subsequently amended (herein referred to as ``the Act''). Unless otherwise stated, statutory references in this panel are to the Act. 4 ``Revenue Canada Round Table,'' in Report of Proceedings of the Thirty-Third Tax Conference, 1981 Conference Report (Toronto: Canadian Tax Foundation, 1982), 726-66, question 23, at 743-44.
5 Ibid. 6 Bill C-18, An Act To Amend the Income Tax Act, the Canada Pension Plan, the Cultural Property Export and Import Act, the Income Tax Conventions Interpretation Act, the Tax Court of Canada Act, the Unemployment Insurance Act, the Canada-Newfoundland Atlantic Accord Implementation Act, the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act, and Certain Related Acts, first reading May 30, 1991. 7 ``Revenue Canada Round Table,'' in Report of Proceedings of the Forty-Second Tax Conference, 1990 Conference Report (Toronto: Canadian Tax Foundation, 1991), 50:1-68, question 26, at 50:15. 8 Interpretation Bulletin IT-258R2, May 11, 1982. 9 Interpretation Bulletin IT-260R, November 12, 1979. 10 Interpretation Bulletin IT-64R2, December 20, 1983. 11 Interpretation Bulletin IT-243R3, May 21, 1985. 12 88 DTC 6525; [[1989] 1 C.T.C. 66] (1989) 1 CTC 66 (FCTD). 13 Supra footnote 7, question 22, at 50:12-13. 14 Supra footnote 10. 15 Interpretation Bulletin IT-147R2, June 19, 1985. 16 Interpretation Bulletin IT-486R, December 31, 1987. 17 Canada, Department of Finance, Release, no. 90-171, December 20, 1990. 18 Information Circular 76-19R, November 13, 1978. 19 Information Circular 76-19R2, June 15, 1990. 20 ``Revenue Canada Round Table,'' in Report of Proceedings of the Thirty-Eighth Tax Conference, 1986 Conference Report (Toronto: Canadian Tax Foundation, 1987), 51:1-88, question 62, at 51:30. 21 Supra footnote 4, question 42, at 757-58. 22 ``Revenue Canada Round Table,'' in Report of Proceedings of the Thirty-Sixth Tax Conference, 1984 Conference Report (Toronto: Canadian Tax Foundation, 1985), 783-847, question 82, at 839-40. 23 Supra footnote 4, question 42, 757-58. 24 Supra footnote 7, question 56, at 50:29-30. 25 SO 1982, c. 4, as amended. 26 Interpretation Bulletin IT-454, August 11, 1980. 27 Interpretation Bulletin IT-417R, July 5, 1982. 28 Interpretation Bulletin IT-206R, October 29, 1979. 29 ``Revenue Canada Round Table,'' in Report of Proceedings of the Forty-First Tax Conference, 1989 Conference Report (Toronto: Canadian Tax Foundation, 1990), 45:1-60, question 38, at 45:22-23.
30 The Queen v. Halliburton Services Ltd., 90 DTC 6320; [[1990] 1 C.T.C. 427] (1990) 1 CTC 427 (FCA). 31 The Queen v. Nowsco Well Service Ltd., 90 DTC 6312; [[1990] 1 C.T.C. 416] (1990) 1 CTC 416 (FCA). 32 Interpretation Bulletin IT-328R2, May 27, 1985. 33 Interpretation Bulletin IT-239R2, February 9, 1981. 34 Weatherhead v. MNR, 90 DTC 1398; [[1990] 1 C.T.C. 2579] (1990) 1 CTC 2579 (TCC).
35 ``Revenue Canada Panel,'' in Creative Tax Planning for Real Estate Transactions---Beyond Tax Reform and into the 1990s, 1989 Corporate Management Tax Conference (Toronto: Canadian Tax Foundation, 1989), 8:1-59, question 13, at 8:24-25. 36 ``Revenue Canada Round Table,'' in Report of Proceedings of the Thirty-Ninth Tax Conference, 1987 Conference Report (Toronto: Canadian Tax Foundation, 1988), 47:1-103, question 70, at 47:39. 37 Canada, Revenue Canada, Taxation, Release, no. 91-09, May 24, 1991. See also Bill C-18, supra footnote 6. 38 O'Brien v. The Queen, 85 DTC 5202; [[1985] 1 C.T.C. 285] (1985) 1 CTC 285 (FCTD). 39 Fries v. The Queen, 90 DTC 6662; [[1990] 2 C.T.C. 439] (1990) 2 CTC 439 (SCC). 40 Interpretation Bulletin IT-148R2, June 2, 1981. 41 Interpretation Bulletin IT-470R, February 16, 1981. 42 Splane v. The Queen, 90 DTC 6442; [[1990] 2 C.T.C. 199] (1990) 2 CTC 199 (FCTD).
43 Ransom v. MNR, 67 DTC 5235; [[1967] C.T.C. 246] (1967) CTC 246 (Ex. Ct.). 44 McNeill v. The Queen, 86 DTC 6477; [[1986] 2 C.T.C. 352] (1986) 2 CTC 352 (FCTD). 45 Phillips v. MNR, 90 DTC 1274; [[1990] 1 C.T.C. 2372] (1990) 1 CTC 2372 (TCC). 46 Côté v. MNR, 89 DTC 512; [[1989] 2 C.T.C. 2218] (1989) 2 CTC 2218 (TCC). 47 Lao v. MNR, 91 DTC 330; [[1991] 1 C.T.C. 2718] (1991) 1 CTC 2718 (TCC). 48 Information Circular 77-16R3, February 19, 1988. 49 Supra footnote 22, question 17, at 796-97. 50 Supra footnote 20, question 84, at 51:41. 51 Supra footnote 6. 52 Supra footnote 29, question 3, at 45:3. 53 Interpretation Bulletin IT-114, August 3, 1973. 54 Interpretation Bulletin IT-233R, February 11, 1983. 55 ``Revenue Canada Round Table,'' in Report of Proceedings of the Fortieth Tax Conference, 1988 Conference Report (Toronto: Canadian Tax Foundation, 1989), 53:1-188, at 53:12-13. 56 Information Circular 71-14R3, June 18, 1984.
57 Privacy Act, RSC 1985, c. P-21, as amended. 58 Access to Information Act, RSC 1985, c. A-1, as amended. 59 Supra footnote 29, question 29, at 45:18. 60 Information Circular 77-9R, June 22, 1983. 61 [[1991] 2 C.T.C. 70] 91 DTC 5424 (FCTD). 62 Supra footnote 1. 63 Canada-United States Tax Convention Act, 1984, SC 1984, c. 20. 64 Revenue Canada, Taxation, ``The Collections Policies of Revenue Canada, Taxation,'' pamphlet T-4060. 65 Supra footnote 6. 66 See supra footnote 37.
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