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As you are aware, it has been our position in the past that a corporation would be considered a "loan corporation" for purposes of section 405 of the Regulations if it was regulated as a "loan corporation" by either the federal Trust and Loan Companies Act or a provincial Loans and Trust Companies Act. ... The Province of Ontario in its interpretation bulletin also indicates that "Finance and acceptance corporations whose principal activity is discounting commercial paper as opposed to directly money-lending, are not considered to be loan corporations and must use the normal formula, using both gross revenue and salaries and wages. ... Given that section 405 of the Regulations does not restrict its application to corporations which are regulated as "loan corporations" either federally or provincially we are of the opinion that a corporation whose principal business is the lending of money or the making of loans could be considered to be a "loan corporation" for purposes of section 405 of the Regulations. ...

Principal Issues: Overview of thin capitalization rules Position: See overview Reasons: See overview March 31, 2001 Commonwealth Association of Tax Administrators 2001 Technical Conference (draft response) Thin Capitalization Overview Canada is considered a high tax jurisdiction. ... The permitted 3:1 debt-equity ratio is now considered high when compared to actual industry ratios in the Canadian economy. ... The Department of Finance recognizes that other changes to the thin capitalization rules need to be considered. ...

John Sitka HEADQUARTERS Excise & GST Randy Hewlett, B.Comm. 16th Floor, Place de Ville 613-957-8973 2001-009577 Motor Vehicle Allowance We are writing in response to your memorandum dated August 1, 2001, wherein you requested our opinion on whether motor vehicle allowances paid to employees by their employer would be considered taxable benefits where they are based on a per-kilometer rate for business travel outside the metropolitan area in which the business is located and a flat rate for business travel within the metropolitan area. ... In addition to the requirements of subparagraph 6(1)(b)(x) of the Act, an allowance will not be considered reasonable if, after reviewing all of the facts, it is determined that the allowance is not based upon actual business-related expenses of the employee. ... In regard to your specific inquiry, where an employee receives reasonable allowances that are based upon a per-kilometer amount for business travel outside the metropolitan area in which the business is located and a flat rate amount for business travel within the metropolitan area, each allowance is considered separately. ...

However, this must be considered in conjunction with the concept of stare decisis which requires similar problems to be resolved in similar ways. ... Of course, in order to determine whether a current situation is similar to one previously considered by a court, both the facts of the situations and the relevant legal concepts must be considered. ...

Principal Issues: Would a CCPC's earning of income from fees charged for the use of its Automatic Teller Machines be excluded from qualifying as a qualifying active business within the meaning assigned by subsection 5100(1) of the Regulations because it is considered to be income from property? ... Sarazin Acting Director (613) 824-5441 Attention: Gord Brown 2000-000078 Qualifying Active Business and Automated Teller Machines We are writing to you in response to your facsimile dated January 7, 2000, wherein you requested our comments regarding the determination of whether income derived from fees charged for the use of Automated Teller Machines ("ATMs") would be considered income from property and excluded under paragraph (a) of the definition of "qualifying active business" in subsection 5100(1) of Income Tax Regulations (the "Regulations"). ... Where the conditions described in (b), (c) and (d) of the definition of qualifying active business are satisfied and you have concluded that there is enough activity carried out by the corporation to support the existence of a business, we would support a conclusion that the principal purpose of earning income from fees charged for the use of the corporation's ATMs would not be considered a principal purpose of earning income from property. ...

Principal Issues: Whether an assessment in respect of foreign accrual property income can be considered to be made as a consequence of the transaction whereby the taxpayer acquired the shares of the controlled foreign affiliate. ... For example, where a taxpayer incorporates a CFA and capitalizes it with $100M, if the FAPI arises directly as a consequence of the investment by the CFA of such $100M in a portfolio of FAPI earning properties, then it is our view that the assessment of the taxpayer in respect of such FAPI can be considered to have been made as a consequence of a transaction and the FAPI can reasonably be regarded as relating to a transaction (i.e. the investment in CFA) involving the taxpayer and a non-resident person (i.e. the CFA). ... Moreover, in a case where a taxpayer acquires the shares an existing foreign corporation from another person and the foreign corporation becomes a CFA of the taxpayer on that acquisition, it is our view that such transaction would not be considered as involving the CFA for the purposes of subparagraph 152(4)(b)(iii) of the Act. ...

Reasons: The concept of "surplus" is not defined in the Act; however, we have considered it on a few occasions and have adopted a broad view as to its meaning. ... We considered a similar issue respecting pension surplus once before in XXXXXXXXXX (endnote 1). ... The concept of "surplus" is not defined in the Act; however, we have considered it on a few occasions and have adopted a broad view of its meaning. ...

Reasons FOR POSITION TAKEN: Since the payments are made "on the basis of a means, needs or income test", the payments made by the charitable organisation would be considered social assistance for purposes of paragraph 56(1)(u) of the Act. ... In our view, since the payments described above are made "on the basis of a means, needs or income test", the payments made by the charitable organisations would be considered social assistance for purposes of paragraph 56(1)(u) of the Act. Since the charitable organisation is considered to be a person who makes a payment described in paragraph 56(1)(u) of the Act, for purposes of subsection 233(1) of the Income Tax Regulations (the "Regulations"), it would be responsible for issuing any required T5007 forms. ...

Reasons: Paragraph 56(1)(x) applies to any payments from an RCA to the beneficiary that can reasonably be considered to have been received in respect of an office or employment. ... Under paragraph 56(1)(x) of the Income Tax Act (the "Act"), a taxpayer is required to include any amount, including a return of contributions, received in the year by the taxpayer or another person, other than an amount required to be included in that other person's income for a taxation year under paragraph 12(1)(n.3), out of or under an RCA that can reasonably be considered to have been received in respect of an office or employment. It may be argued that a loan from an RCA could constitute an amount received by the taxpayer from an RCA that can reasonably be considered to have been received in respect of an office or employment. ...

Pre-purchase appraisal fees and inspection fees are not referred to in paragraph 62(3)(f) of the Act, and therefore are not considered eligible moving expenses. Pre-purchase appraisal fees and inspection fees in respect of the purchase of the new home are considered expenses incurred to acquire a personal asset and therefore reimbursement by the employer to an employee of such fees would be considered a taxable benefit to be included in income under paragraph 6(1)(a) of the Act. ...