Income Tax Severed Letters - 1997-09-05

Principal Issues:

Would the exception at 248(1)(k) of the SDA definition apply, when the employee can defer receipt of a bonus?

Position:

Provided the election is made prior to actual or constructive receipt, an election to defer a bonus would not affect the exception.

Reasons:

Principales Questions:

A- Un enfant mineur est l'unique bénéficiaire d'une fiducie discrétionnaire - Le fait que le fiduciaire a le pouvoir discrétionnaire d'effectuer des paiements indirects pour le bénéfice exclusif du bénéficiaire a-t-il un impact sur l'application du paragraphe 104(18) de la Loi?

B- Commentaires relativement à des paiements fait à des tiers pour effectuer des dépenses pour le bénéfice d'un enfant mineur

Position Adoptée:

Principal Issues:

Is there a requirement that income earned by an RESP trust be accounted for allocation purposes?

Position:

No

Reasons:

Principal Issues:

Income tax treatment of a lump-sum payment received from an insurer on a "personal" accident, sickness and disability policy.

Position:

Question of fact but generally where amount of premium is paid personally and is not employment related any lump-sum settlement amount would not be taxable. Any interest included in the lump-sum settlement is taxable pursuant to 12(1)(c) of the Act.

Reasons:

Principal Issues:

1.Whether a property that is re-acquired in 1996 and used by the taxpayers nephew for farming qualifies as "Qualified Farm Property".

2.Whether this acquisition would qualify as a replacement property of a former property.

Position:

1.No

2.No

Reasons:

Principal Issues:

Can an actuarial surplus in an RPP be transferred to a member's RRSP?

Position:

No

Reasons:

Principal Issues:

1)whether 18(9.1) applies to interest buy-down on a mortgage taken out on land held to produce rental property.
2)whether a combination of 18(9.1) and 20(1)(e)(ii.1) apply to a payment made in connection with the restructuring or rescheduling of the mortgage which includes an interest rate reduction.

Position:

1)Yes;
2)No, just 20(1)(e)e)(ii.1) applies.

Reasons:

Position:

Principal Issues:

Whether a Deferred Salary Leave Plan meets the requirements of a prescribed plan?

Position:

Discussed certain requirements necessary to be a prescribed plan.

Reasons:

Principal Issues:

Whether multiple properties considered "a property"?

Position:

NO.

Reasons:

Principal Issues:

Whether GAAR applies to sale of assets by RRSP/RRIF to annuitant and repurchase of same undertaken to increase "cost amount" of property so that foreign property content can be increased.

Position: No reply.

Reasons:

Principal Issues: Forgiveness of debt from a branch ?

Position: No

Reasons: Branch is same person as non-resident

Principal Issues: Venture Capital corporations Criteria

Position:Case by case review

Reasons: 39(4) election

Principal Issues:

Would a non-profit organization proposing to carry on a business no longer qualify as an NPO if it under took the activities directly or in an incorporated subsidiary?

Position:

Question of fact as to a causal relationship between the business and the exempt purpose of the organization if undertaken directly. Also possible to receive dividends from a subsidiary incorporated to carry out the activities if dividends are appropriately used by the NPO.

Reasons:

Principal Issues:

The taxation of income earned by Indian investors in mutual funds.

Position:

Taxable as earned in the economic mainstream.

Reasons:

Principal Issues:

Whether an investment fund operated from an Indian reserve will provide its Indian investors with tax-exempt investment income.

Position:

No.

Reasons:

Principal Issues:

Writer wished to confirm his understanding of 144(1) and 144(9) with respect to reallocation of amounts

Position:

Basic explanation of the provisions provided.

Reasons:

Principal Issues:

Would marketing services provided by a controlled foreign affiliate of a Canadian manufacturer for that manufacturer be included under paragraph 95(3)(b) so that they would not be "services" for the purposes of paragraph 95(2)(b)?

Position:

Yes.

Reasons:

Principal Issues:

Request for ruling on payment of retiring allowance in a given fact situation.

Position:

Principal Issues:

1) What are the tax consequences to a Canadian shareholder as a result of a U.S. spin-off (or divestiture) where stock of subsidiaries is distributed to shareholders of XXXXXXXXXX?

2) Is there any special treatment available for Canadian shareholders?

Position:

1) Dividend to the Canadian shareholder, equal to the fair market value of the distributed shares at the time they are received.

2) No. Finance has only granted one remission order in respect of a 1984 divestiture by AT&T, which was court ordered. Finance indicated that the main reason for that remission order was that it was involuntary. No remission orders have been granted for voluntary spin-offs.

Reasons:

Principal Issues:

Tax consequences on death of non-resident annuitant of RRSP or RRIF.

Position:

Referred to law and publications on point.

Reasons:

Principal Issues:

Whether new retirement savings plan of 70 or 71 year old annuitant can be registered in 1997 in order to receive property from RRSP which was registered before 1997.

Position:

No.

Reasons:

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

		971967
XXXXXXXXXX	R. Albert

Attention: XXXXXXXXXX

July 24, 1997

Dear Sir:

Re: IT-226R - Gift to a Charity of an Equitable Interest in a Trust

Principal Issues:

Tax implications when RPP registration is revoked.

Position:

Becomes an RCA - general statement about tax consequences.

Reasons:

Principal Issues:

Whether the XXXXXXXXXX can be considered as an "other educational institution" within subparagraph 118.5(1)(a)(i) as described in paragraph 3(b) of IT-516R2.

Position:

No.

Reasons:

Principal Issues:

Whether the Indian band can issue official receipts for donations received to build a park?

Position:

No, based on the information supplied.

Reasons:

Principal Issues:

Investment in golf club as a qualified investment for an RRSP

Position:

Routine reply on 4900(6) and (12) with added caution that golf club probably not carrying on active business.

Reasons: N/A

Principal Issues:

Whether the reserve claimed by a member of a partnership under section 34.2 and included in income in following year when the individual was no longer a member of the partnership would be allocated to his province of residence.

Position:

Cannot be definitive, only general comments available; transaction being proposed.

Income earned in a year in a province computed according to rules under Part XXVI of Regulations and would depend on whether taxpayer carried on a business in the year, resided in the province and had a permanent establishment in or outside the province.

Reasons:

Principal Issues:

whether an assisted living facility is a place described in 118.2(2)(e) such that the fees paid for accommodation therein qualify as a medical expense

Position:

generally such fees would not qualify, although it depends on the nature of the specific handicap and whether specially provided equip, facilities or personnel are provided

Reasons:

Principal Issues:

Whether a claim for capital cost allowance for purposes of paragraph 8(1)(j) should be based on the fair market value of the motor vehicle at the time the employee began to use it for employment purposes even though the employee was not entitled to such a claim in previous years as the employee received a reasonable allowance which was not included in income by virtue of subparagraph 6(1)(b)(vii.1). Also, in such circumstances, will the half-year rule apply in the first year in which the employee makes a capital cost allowance claim for the vehicle?

Position:

Generally, the capital cost of a motor vehicle for capital cost allowance purposes is its original cost unless the Act provides otherwise. Where the employee is deemed by paragraph 13(7)(b) to have acquired the vehicle at a capital cost equal to its fair market value at the time the employee began to use the vehicle for employment purposes, the employee's claim for capital cost allowance for purposes of paragraph 8(1)(j) will generally be based on the deemed capital cost. Where the "automobile" is a "passenger vehicle", the capital cost otherwise determined will be subject to the provisions of paragraphs 13(7)(g) and (h). In the circumstances described, the half-year rule in subsection 1100(2) of the Regulations will not apply as the vehicle was not acquired in the year in which the capital cost allowance claim is being made.

Reasons:

Principal Issues:

Is capital cost allowance still available to an investor for an investment in a Canadian content feature film produced in 1997?

Position:

Yes, subject to the "half-year rule", the "available for use rules", the "leasing property rules" and, if applicable, the proposed tax shelter investment rules. General comments.

Reasons:

Principal Issues:

Whether release of the security posted under subparagraph 128.1 (4)(b)(iv) of the Act should be granted once the time period stipulated in a tax treaty has been completed.

Position: No

Reasons:

Principales Questions:

Est-ce que la dissolution du régime matrimonial (société d'acquêts) des conjoints et la renonciation au partage des acquêts de leur conjoint entraînent une disposition de biens aux fins de la Loi ou l'application des règles concernant les règlements de dettes?

Position Adoptée:

Principal Issues:

Identification of the prerequisites that an Indian band must meet in order to be able to issue receipts for gifts under sections 110.1 and 118.1 of the Income Tax Act.

Position:

The Department's administrative position is to consider a band to be a municipality for purposes of sections 110.1 and 118.1 and therefore be able to issue official receipts for gifts if it qualifies for exemption under paragraph 149(1)(c) of the Income Tax Act. Generally, this means that the band must have passed bylaws under both sections 81 and 83 of the Indian Act. Bands that do not meet this requirement can be considered on a case-by-case basis to determine whether the band "performs a function of government in Canada" as required by paragraph 149(1)(c).

Reasons:

Principal Issues:

A Canadian school teacher has accepted a one year exchange position (teaching) in Australia and will continue to be paid by his or her Canadian employer while in that country. The Canadian teacher has agreed to exchange accommodation and will live in the Australian teacher's residence while the Australian teacher will occupy the Canadian teacher's residence. One of the requirements in respect of moving expenses (section 62) is that the Canadian teacher must be a resident of Canada for income tax purposes during his or her period of absence from Canada. A second requirement is that the move must be from the residence from which the individual ordinarily resided to a residence at which after the move, he or she ordinarily resided.The issue is whether these two requirements can be considered to have been satisfied.

Position: Generally, yes

Reasons:

Principal Issues:

Application of the grandfathering provisions (Clause 57(10)(b) of Bill C-69) to subsections 112(3) to (3.32) where a new life insurance policy is issued after April 26, 1995.

Position:

General comments provided. Where a corporation is not a beneficiary of a life insurance policy on April 26, 1995 grandfathering will not apply. A subsequent change of beneficiary will not be accepted.

Reasons:

Principales Questions:

1) Le salaire versé à l'unique employé-actionnaire d'une société de gestion est-il déductible?
2) Les frais de gestion intersociétés sont-ils déductibles?

Position Adoptée:

Principal Issues:

Ruling request with respect to payment of retiring allowance to spouse

Position:

No ruling provided. We assumed they did not wish to proceed with the request

Reasons:

Principal Issues:

whether an amount paid remains a "death benefit" if it is paid in "the form of life insurance over a three year period."

Position:

remains a death benefit, taxable under 56(1)(a)(iii), if there is no insurance being contemplated (verbally confirmed by client). If the employer does purchase life insurance for employees then the payment of the premium will trigger an income inclusion under either para. 6(1)(a) or ss. 6(4) of the Act, depending upon whether the insurance is "group term life insurance."

Reasons:

Principal Issues:

Whether subsection 116(5) of the Act would apply where a purchaser only acquires, from the non-resident, legal title to the real property situated in Canada and not beneficial ownership?

Position:

Yes. However, the "cost" for purposes of subsection 116(5) would likely be nominal at it would be based on the FMV of that interest pursuant to subsection 116(5.1) of the Act.

Reasons:

Principal Issues:

Does paragraph 5907(2)(f) of the Regulations extend to income which has been excluded from the computation of the "earnings amount" by virtue of a foreign income tax ruling?

Position:

Yes.

Reasons:

Principal Issues:

Social Welfare as opposed to Commercial Activities in context of paragraph 149(1)(l).

Position:

Question of Fact in each case.

Reasons:

Principal Issues:

Whether the Asian Development Bank is a prescribed entity for purposes of subparagraph 110(1)(f)(iii) of the Act.

Position: No.

Reasons:

Principal Issues:

Whether timber properties that are actively exploited would be considered "property (other than rental property) in which the business of the company was carried on" for purposes of paragraph 4 of Article 13 of the Canada-Germany Income Tax Convention

Position:

Yes

Reasons:

Principal Issues:

Whether income from employment of a Status Indian, who is living on-reserve and who is a XXXXXXXXXX, is exempt while the employee is suspended (with pay).

Position:

No.

Reasons:

Principal Issues:

Article XVI of the Canada-Barbados Agreement - can Canada tax the gain on the sale by a individual resident of Barbados of shares of a holdco whose assets consist of shares of another Canadian company whose principal asset is real property in Canada?

Position:

No, subject to GAAR; however, October 2, 1996 new emigration rules will apply to deem shares to be disposed of on departure.

Reasons:

Principales Questions:

1. Les particuliers détenteurs des actions de catégorie 1 et de catégorie 2 de la Société auraient-ils droit à la déduction pour gains en capital prévue au paragraphe 110.6(2.1) de la Loi de l'impôt sur le revenu?

2. Comment le produit de disposition des actions devrait-il être réparti entre les deux catégories d'actions?

Position Adoptée:

Principales Questions:

Est-ce que l'organisation peut se qualifier à titre d'organisation à but non lucratif en vertu de l'alinéa 149(1)l) de la Loi?

Position Adoptée:

Principal Issues:
Does a benefit accrue to either freezor or children on "refreeze transactions.

Position:
No.

Reasons:
On May 15, 1997, the Review Committee agreed with our recommendation to reverse our long-standing position that we would consider a benefit to arise on "refreeze" transactions. A detailed analysis of the issues involved can be found in our submission to the Review Committee dated May 6, 1997 - document # 951901. This letter marks our first application of the new position.

Principal Issues:

Timing of Amalgamation

Position:

Where no time stamp taxpayers can pick order.

Reasons:

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

XXXXXXXXXX 960922

Attention: XXXXXXXXXX

May 22, 1997

Dear Sirs:

Re: Subsection 34.2(5) of the Income Tax Act (the "Act")

Principales Questions:

Quel traitement fiscal devrait être accordé au coût relatif à la plantation d'arbres en bordure de champs agricoles afin d'en contrer l'érosion?

Position Adoptée:

Principal Issues:

Taxability of group disability plan

Position:

If legal obligation for employees to pay 100% of premiums, it is an "employee-pay-all plan" and the amount received are not taxable

Reasons:

Principal Issues:

Reporting of payments and prizes

Position:

If there is an employee-employer relationship, the payor is required to file forms under regulations 200. Taxability of prizes is dependent on the terms and conditions. Could be employment income, business income or other income under 56(1)(n) unless it is a prescribed prize.

Reasons:

Principal Issues:

Information concerning RRSP contribution deductions for Canadian Embassy staff who are members of an RPP.

Position:

Provided general overview of law and relevant ITs and Guide concerning deductions for residents (actual or deemed) and non-residents taxed under 115(2)(c).

Reasons:

Principal Issues:

Application of proposed amendments in bill c-69 (1) whether disposition of property to be exempted under 55(3)(a)(i) has to meet description of both clauses (A) and (B) of 55(3)(a)(i). (2) whether redemption of shares for its fmv would meet the description of both clause (A) and (B).

Position:

(1) no. (2) yes

Reasons:

Principal Issues:

Whether subsection 104(18) is applicable to a particular trust arrangement

Position:

General comments provided

Reasons:

Principal Issues: