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Wong XXXXXXXXXX 970018 Attention: XXXXXXXXXX October 15, 1997 Dear Sirs: Re: Treaty Definition of “Franchise Agreement” We are writing in response to your letter of January 3, 1997 wherein you requested our comments on whether a cross border know-how agreement would be considered a “franchise agreement” for the purposes of paragraph 3(c) of Article XII of the Canada-United States Income Tax Convention (1980) (“Treaty”). ... Your position is that this cross-border Know-How together with the technical support necessary to implement or utilize the Know-How, should not be considered a franchise agreement. ... The term "franchise" is not defined for purposes of the Income Tax Act; however, the expression has been judicially considered. ...

In our reply to that question we stated that where, on a specific date, the value of phantom shares on that date will be paid to an employee, the plan will be considered to be a salary deferral arrangement notwithstanding that the value on the payment may be less than the value at the time such shares were granted. ... We also stated that where, on a specified date, an employee is entitled to receive only the increase in the value of the underlying phantom shares, (a type of plan referred to as a stock appreciation rights plan) it will generally not be considered a salary deferral arrangement. ... In our opinion, a unit of a unit trust that holds shares of an employer or a related corporation for the benefit of an employee might reasonably be considered to be equivalent to a phantom share. ...

Such expenses are considered personal expenses. 5-973033 XXXXXXXXXX A. ... As stated in paragraph 5 of Interpretation Bulletin IT-63R5 (copy attached) and paragraph 49 of Interpretation Bulletin IT-522R, the Department considers that travel between an employee's home and regular work location is considered personal commuting, the costs of which are not considered a deductible traveling expense. ...

In relation to the above information, you have referred to comments in paragraph 22 of Interpretation Bulletin IT-120R4 “Principal Residence” which state “A legally imposed minimum lot size, for residential use, exceeding 1/2 hectare that was in effect on the date the property was acquired by the taxpayer, is generally considered to be the minimum amount of land necessary for the use and enjoyment of the housing unit as a residence throughout the period that the property is continuously owned by the taxpayer after that acquisition date.” ... Under that definition, if the total area of the contiguous land upon which a housing unit is situated, exceeds 1/2 hectare, the excess land is considered not to have contributed to the use and enjoyment of the housing unit as a principal residence, unless it is established that the land in excess of 1/2 hectare was necessary for such use and enjoyment. ... If any portion was used, for example, for income producing purposes, it may not be considered necessary for the use and enjoyment of the housing unit. ...

Spice ATTENTION: XXXXXXXXXX March 26, 1998 RE: Accounts Receivable As Active Business Assets This is in reply to your fax of October 30, 1997, in which you ask whether an account receivable for fees charged for management and other services would be considered to be “used principally in an active business” for purposes of the definition of “small business corporation” in subsection 248(1) of the Income Tax Act (the “Act”). ... Trade account receivables which are held to meet current cash flow or current working capital requirements are generally considered to be used in the business. ... Where, however, the trade account receivables are held to offset the non-current portion of long-term liabilities, they will not be considered to be used in the business. ...

Paragraph 19 of Interpretation Bulletin IT-470R mentions that tuition fees paid by an employer are not considered to be a taxable benefit for an employee where the course for which the fees were paid was undertaken on the employer's initiative and for the benefit of the employer rather than the employee. ... If the amount is in satisfaction of an obligation by the employer to the employee arising as a result of his employment, the amount is usually considered to be employment income unless it can be justified as a retiring allowance. ... In our opinion, amounts paid as reimbursement of moving expenses and for the cost of a professional relocation consultant to help a former employee in relocating to an other locale (other that those incurred to move out of a remote location) where the former employee has obtained an employment with a new employer would be considered as a retiring allowance to the extent that the benefit can be shown to be an amount received in respect of the loss of office or employment. ...

The purpose of paragraph 252(4)(a) of the Act is to determine whether a particular individual can be considered a spouse in relation to the taxpayer for the general purposes of the Act. ... The amount of the benefit payable for a particular month is based on the income of the claimant and that of any other individual who can be considered a "cohabiting spouse" as that term is defined in section 122.6 of the Act. ... In our opinion based on the example in your memorandum, Woman A would be considered the spouse of Mr. ...

Such items provided by an employer to an employee are not considered a taxable benefit within the meaning of paragraph 6(1)(a) of the Act in view of the lack of personal benefit to the employee: the employee is required by his employer to wear the uniform or protective clothing while performing the duties of his employment and there is no possibility of personal use of these items by the employee during off-duty hours. ... Such a reimbursement is not considered to be a taxable benefit to the employee. Again, it is the Department's position that, where a non-accountable allowance is provided for this purpose, it will not be considered a taxable benefit to the extent that it is reasonable and was actually expended for that purpose. ...

.- Also, lump-sum RRSP payments are not considered to be "income from a trust" for the purposes of Canada's conventions. ... Where a particular convention makes reference to the term “pension” but the convention does not include a definition of “pension”, any RRSP payment (lump-sum or periodic) is considered to be a “pension” for the purposes of that convention and not “income from a trust”. ... Also, a lump-sum RRSP payment is not considered to be income from a trust under these conventions. ...

Principal Issues: Whether pension income can be considered to be a research grant. ... Further, in order for an expenditure to be considered a gift, it must be made without conditions, from detached and disinterested generosity, out of affection, respect, or charity or like impulses, and not from the constraining forces of any moral or legal duty. ... " If it is established on the basis of the facts in a particular case that it is a donation of services, it would not be considered a gift in that services are not property and a federal tax credit under subsection 118.1(3) of the Act would not be available to the individual. ...