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21 July 2011 External T.I. 2010-0359171E5 F- Montants forfaitaires- retraités-- summary under Death Benefit Summary Under Tax Topics- Income Tax Act- Section 248- Subsection 248(1)- Death Benefit payment in lieu of cancelled term life insurance policy made to employee’s estate is death benefit – but s. 6(4) or 6((1)(a) income if paid before retired employee’s death Following the termination of a group term life insurance policy for the benefit of retired employees, their former employer (Taxpayerco): (1) may decide to pay, to the estate of the retiree or specifically designated beneficiaries, an equivalent amount ("lump sum") to the death benefit initially provided for in the abandoned group life insurance policy; or (2) may decide to pay the lump sum directly to a retiree prior to the retiree’s death. Respecting the first scenario, CRA stated: [T]he definition of [death benefit] … is broad enough to include the lump sum that Taxpayerco proposes to pay on the death of a retiree. ... Respecting the second scenario, CRA stated: [A]ny amount paid to a retiree by Taxpayerco should be included in computing the retiree’s income under either section 5 or section 6 … [as] the payment … arises necessarily from the retiree’s employment with Taxpayerco. ...

. … [However, where] individuals … live in a prescribed zone and maintain a self-contained domestic establishment for themselves or any other dependents in a non-prescribed zone … the absences of those individuals from the prescribed zone result in a break in the continuity of residence in the area. Thus, for those individuals … the principal place of residence is not in such a prescribed zone. ...

CRA stated: [L]og hauling services performed by a subcontractor from the point of harvest to the point of delivery of the logs to a processing plant (sawmill, pulp mill, plywood mill or other similar log processing location), can constitute an activity of logging for purposes of the definition of qualified property in subsection 127(9) and paragraph 4600(2)(f) … based, inter alia, on Lor-Wes …. ... Finally, a logging truck as described in paragraph 4600(2)(f) … could be considered to have been acquired for use in logging … if it were acquired by a subcontractor with the intention of using it for log hauling services to sawmills, pulp mills or other processing sites on behalf of a number of wood producers who are either farmers who own woodlots or simply other persons who own woodlots for whom income from the sale of wood is not the primary source of income. ...

However, … subsection 246(1) may apply … if it were established that Corporation C conferred the benefit for the personal use of the Aircraft.” ... A’s income … if it was a payment made directly to Mr. A, since Mr. A is not a shareholder of Corporation E. ... A … However, in … Masicotte the judge concluded that subsection 246(1) could apply when a corporation confers a benefit on an indirect shareholder. ...

After referring to s. 123.7 et seq. pf the Quebec Companies Act (providing inter alia that “A company is bound by any deed performed in its interest before its constitution provided it ratifies the deed within 90 days after its constitution”), the Directorate stated: Where there is no legislation similar to the Quebec Companies Act, the Canada Revenue Agency ("CRA") will normally accept newly incorporated corporation recognizing transactions prior to its incorporation if the … conditions, as set out in … IT-454 [para. 3] are met …. ... B intended, when entering into the agreements with these two parties, to form Company D nor that the latter was the entity that was to deduct the fees. … With respect to the fees paid to Advisor B, the situation is, in our view, somewhat different because, based on the facts you have provided, Corporation D was formed as soon as the mandate was granted to Advisor B. ...

. … Ongoing consultations expenses similar to those described above would appear to be in respect of the exploration process only and therefore would generally be considered to be CEE. … [T]argeted environmental assessments, such as biodiversity and species at risk, that are conducted in conjunction with exploration activities would generally be considered to be CEE. … [E]xpenses for legally documenting arrangements agreed to with the leaders of a community during community consultations would generally be considered to meet the Purpose Test and therefore would be considered to be CEE, to the extent that such legal documentation relates to the exploration process.... Any expenses … that relate to … the development, production or reclamation stages of the project), would not meet the Purpose Test …. ...

The Directorate stated: [P]aragraph 84.1(1)(a) would not apply to the disposition by each of Brother 1 and Brother 2 of the Class A shares … of Amalco 1 or Amalco 2 … to reduce the ACB in respect of the Class B preferred shares … of Holdco 5 and Holdco 6 received as consideration. … [F]or the purposes of paragraph 84.1(1)(a), the ACB to Brother 1 or Brother 2 … of the Class A shares of Amalco 1 or Amalco 2, as the case may be, would technically be deemed to be approximately $XXXXXXX. This is because there would technically be no amount each of which is an amount determined after 1984 under subparagraph 40(1)(a)(i) in respect of a previous disposition of a Class A share of the capital stock of Amalco 1 or Amalco 2, as the case may be, or to an earlier disposition of a share for which that Class A share of the capital stock of Amalco 1 or Amalco 2 would have been substituted (i.e., a Class A share of the capital stock of Holdco 3 or Holdco 4, as the case may be, or, having regard to subsection 248(5), a Class A share of the capital stock of Holdco 1 or Holdco 2, or any of the 149 Class A shares of the capital stock of Opco referred to in (1)(c) above). … [However] in the event that taxpayers apply for advance rulings in respect of a series of proposed transactions similar to the one described above …[we] would … refer such a case to the General Anti-Avoidance Rule ("GAAR") Committee. ...

In the situation where FA1 was required to compute its income (pursuant to Reg. 5907(1) – earnings – (a)(iii)) under Part I of the Act, CRA indicated that the interest was deductible under s. 20(1)(c) “because the borrowed funds replaced capital that…had been used by FA1 for the purpose of earning income from an active business,” whereas in the situation where the earnings were computed pursuant to (a)(i) or (iii) of the earnings definition under local tax law and the interest was non-deductible under such law, CRA simply stated that the interest would be deductible under Reg. 5907(2)(j). ...

., $1,800 = $1,000 + $800). ...

Before noting that the distinction would cease to matter as a result of a proposed retroactive amendment to s. 14(1.01), the Directorate accepted that the agreements represented goodwill stating: [A] private institution under contract must also sign an operating agreement with the MSSS [Quebec Ministry] under which the institution undertakes to provide services as a CHSLD [care facility] …. In return, the MSSS provides the necessary funding for the operation of the institution. … [T]he operating agreements constitute goodwill … since the acquisition of one or more operating agreements by a purchaser can only be made if the Minister … has approved the assignment of the underlying licence. ... Thus, since the transfer of the operating agreements cannot be made without the transfer of the business to the new purchaser, we are of the view that the operating agreements constitute goodwill …. ...