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Sarazin December 14, 1999 Dear Madam: Re: Related Employers and Retiring Allowance This is in response to your letter dated November 1, 1999, wherein you requested that we provide our general comments with respect to whether two employers would be considered related for the purposes of paragraph 60(j.1) of the Income Tax Act (the "Act"). ... Whether a company amalgamated under section 87 can be said to be making the payment on behalf of one of the predecessor companies is a matter we have not considered before, although we note that there is no explicit provision for such a conclusion in section 87 of the Act. You may want to have the issue considered in the context of an advance income tax ruling. ...

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. ...

Position: Factors top be considered were provided Reasons:. This is a question of fact. ... In Henderson 91 DTC 1116, the Tax Court considered whether the taxpayer was in "employment" as defined in subsection 248(1) of the Act. ... This article provides an extensive list of factors that might be considered when determining whether an individual is an employee or independent contractor. ...

Position: Not Considered Reasonable. Reasons: Subparagraph 6(1)(b)(x) of the Act. ... We also understand that if these allowances are considered unreasonable, the employer will not be entitled to the input tax credit under section 174 of the Excise Tax Act. ... It is our view that, since the allowance paid to the employee for the use of the employee's private vehicle is composed of a monthly rate and a cents per kilometre rate, the allowance would not be considered reasonable by virtue of subparagraph 6(1)(b)(x) of the Act, because it is not based solely on the number of kilometres for which the vehicle is used. ...

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. ...

You enquire as to whether any of the following, taken alone or together, would be considered material changes to the Agreement resulting in the loss of Grandfathering Status: a. a requirement that the corporation fund the buy-out on death by purchasing insurance on the life of an individual shareholder; and b. a requirement that in the event of a share redemption on the death of a shareholder, the corporation would elect, pursuant to subsection 83(2) of the Act, that any dividend deemed to arise on redemption be elected to be a capital dividend to the extent of any increment to the corporation's capital dividend account by reason of receiving life insurance proceeds on the death of the shareholder. ... OUR COMMENTS As you have noted, we have taken positions indicating that a material change to a written agreement that was in existence on April 26, 1995 will be considered to result in a new agreement and will therefore result in loss of Grandfathering Status. ... Consistent with the foregoing comment, the amendment requiring the corporation to make an election under subsection 83(2) of the Act would also be considered a material change. ...

Where a DSLP meets the conditions in paragraph 6801(a) of the Income Tax Regulations (the "Regulations"), the amounts deferred under the DSLP will be exempt from being considered a salary deferral arrangement and will only be included in a participant's income as the amounts are eventually received under the terms of the plan. Where a condition in paragraph 6801(a) is no longer complied with, the participant would be considered to have terminated or withdrawn his or her participation in the plan. ... Where a participant in a DSLP elects to accept a buyout package offered by the employer and, as a result, the above-noted condition in paragraph 6801(a) of the Regulations will not be complied with, the participant will be considered to have withdrawn his or her participation in the plan and the deferred amounts plus any unpaid income earned thereon will become taxable at that time. ...

You have asked our opinion as to whether a severance amount paid to a terminated employee can be considered to be a retiring allowance if the employee has made arrangements (without the knowledge of the employer who will pay the severance and before the payment of the severance) to become employed by an affiliate of the employer. ... In order for an amount to be considered a "retiring allowance" the Act states that it must be received "after retirement... from an office or employment in recognition of... long service, or in respect of a loss of an office or employment". ... If retiring allowance treatment is denied, the amount will be considered employment income taxable in accordance with subsection 5(1) of the Act and subject to withholding tax in accordance with subsection 153(1) of the Act. ...

Sarazin Attention: XXXXXXXXXX March 8, 2000 Dear Sirs: Re: Exchangeable Shares as Foreign Property This is in response to your letter dated January 21, 2000, wherein you requested our views as to whether exchangeable shares of a Canadian corporation that derive their value from the shares of a foreign parent corporation would be considered foreign property where paragraph 206(1)(d.1) of the definition of foreign property in the Income Tax Act (the "Act") applies to the shares but paragraph 206(1)(f) of the definition of foreign property the Act does not apply to the shares. ... Consequently, even though shares would be considered foreign property under paragraph 206(1)(d.1) of the definition of foreign property in the Act, the shares would not be foreign property because the exclusion under paragraph 206(1)(f) of the definition of foreign property takes precedence. ... Any property that is described in any of paragraphs 206(1)(a) to (i) of the definition of "foreign property" will be considered foreign property for purposes of Part XI of the Act. ...