Income Tax Severed Letters - 1999-01-22

Principal Issues: qualified farm property: raising horses and farm in year of disposition.

Position: both qualify if considered "carrying on business of farming"

Reasons: def; in 110.6(1)

Principal Issues:

Rollover of an interest in a life insurance policy to a minor child under subsection 148(8). If the child is a minor the child under most provincial statutes may not have the legal capacity to own or deal with an insurance policy (except as a beneficiary). In these cases will a transfer of the policy to a bare trust satisfy the conditions of subsection 148(8)?

Position: No.

Reasons:

Principal Issues:

Rollover of an interest in a life insurance policy to a minor child under subsection 148(8). If the child is a minor the child under most provincial statutes may not have the legal capacity to own or deal with an insurance policy (except as a beneficiary). In these cases will a transfer of the policy to a bare trust satisfy the conditions of subsection 148(8)?

Position: No.

Reasons:

Principal Issues: Do the comments in ¶10 of IT-500R regarding RRSPs also apply to RRIFs?

Position: The relevant comments in the IT discuss subsection 146(8.1). Similar legislation for RRIFs is subsection 146.3(6.1). The issue of deemed receipt is basically identical.

Principal Issues: requirements for approved status under 37(1)(a)(ii)(A)

Position: must be non-profit and be able to carry out SR&ED in Canada on on-going basis.

Reasons: legislation and policy

Principal Issues: Taxability of employee awards

Position: General comments provided

Reasons: General comments provided

Principal Issues: Application of grandfathering of shares for the purpose of the stop loss rules of subsection 112(3) to (3.2) of the Act. Will the rollover of previously grandfathered shares to a new corporation qualify?

Position: Question of fact as to whether grandfathering rules apply and some general discussion of grandfathering rules was provided. However, exchange of share rule only applies for purpose of paragraph 131(1)(b) of c.19.

Reasons: See paragraph 131(1)(b) and subsection 131(12) of c. 19 - grandfathering rules - for purpose of subsection 112(3) to (3.2) of the Act.

Principal Issues:

The terms of a testamentary spousal trust provide that, on the death of the spouse, the entire trust fund is to be paid to one or more registered charities. The trustees have discretion as to the choice of charities and the allocation of funds to any particular charity. Is the spousal trust entitled to claim a charitable donations tax credit when the amounts are actually paid to registered charities?

Position:

This is a factual determination to be made based on the terms of the particular will. If it is determined that the trust has in fact made a gift to a registered charity, it is our view that a charitable donations tax credit may be claimed by the trust to the extent provided by subsection 118.1(3).

Reasons:

Principal Issues: Will this specific stock bonus plan be covered under section 7 of the Act?

Position: Question of fact.

Reasons: Completed transaction so no comments can be provided other than through the relevant TSO.

Principal Issues: Is a rollover available for an amount received from a UK pension plan to an RRSP of a Canadian resident.

Position: Question of fact.

Reasons: Subject to Article XVII of UK treaty and paragraph 56(1)(a).

Principal Issues: Are two corporations associated pursuant to section 256 in a specific fact situation described in the letter.

Position: The two corporations would be associated under paragraphs 256(1)(b)(c)(d)(e), and potentially also under the anti-avoidance provisions of subsection 256(2.1).

Reasons: See description of fact situation in the technical interpretation.

Principal Issues: Will a retired person continue to be considered “retired from the workforce” where he or she does odd handy man projects during the summer?

Position: Question of Fact.

Reasons: The Department has certain established positions in respect of retirement for the purposes of retiring allowances and these positions should be applied equally when determining whether a person has retired from the workforce.

Principal Issues: Whether a "limited services partnership," which provides administrative services, as well as professional staff, to a professional partnership at a 15% mark-up, would be acceptable.

Position: General comments only. Our general view with respect to services partnerships is explained in opinion letters 9603995 and 9634905. Further, the Department views fees based on a 15% mark-up of the reasonable costs incurred by the services partnership as being deductible.

Reasons: The acceptance of claims involving the use of service partnerships involves a question of fact, which can only be determined following a thorough review of the circumstances of a particular situation. Further, it is the Department’s practice to examine all of the facts before making a determination as to whether subsection 245(1) would be applied. We would also note that there is a possibility that section 103 may apply in some situations

Principal Issues: Can the trustee of an EPSP be a corporation or individual?

Position: Either appears possible.

Reasons: No restrictions under the Act.

Principal Issues: Whether a "limited services partnership," which provides administrative services, as well as professional staff, to a professional partnership at a 15% mark-up, would be acceptable.

Position: General comments only. Our general view with respect to services partnerships is explained in opinion letters 9603995 and 9634905. Further, the Department views fees based on a 15% mark-up of the reasonable costs incurred by the services partnership as being deductible.

Reasons: The acceptance of claims involving the use of service partnerships involves a question of fact, which can only be determined following a thorough review of the circumstances of a particular situation. Further, it is the Department’s practice to examine all of the facts before making a determination as to whether subsection 245(1) would be applied. We would also note that there is a possibility that section 103 may apply in some situations

Principal Issues: We have been asked to be of assistance with respect to a settlement (out-of-court or in court) that an individual may receive. Taxable and non-taxable may be involved.

Position: General comments were provided.

Reasons: Specific information not available.

Principal Issues: What options are qualified investments within the meaning assigned by subsection 146(1) of the Act?

Position: Only if 4900(1)(e) is satisfied.

Reasons: An option to acquire a property will be a qualified investment if the property itself is a qualified investment.

Principales Questions:

Est-ce que 191(4) s’applique?

Position Adoptée:

Principales Questions:

Application 81(1)(i)

Position Adoptée:

Principal Issues: Unpaid leave of absence until pension commences - has the individual retired?

Position: Question of fact, but if no pension benefits accruing and other tests described in IT-337R3 are met, generally the individual would be considered retired.

Reasons: Consistent with positions in IT-337R3.

Principal Issues: non-residents in receipt of IDRC awards

Position: See letter - not enough information to give more than general comments

Reasons:

Principal Issues:

Principal Issues: Whether use of employer's car is a taxable benefit in three different scenarios: (1) The employee uses the car to travel home the day before an all-day conference. The employee then uses the car to travel to the conference. The following day the employee returns the employer's car to his or her work location. (ii) The employee uses his or her own car to travel from home to an employer's facility, switches to an employer's vehicle, and continues on to a second facility. At the end of the day, the employee reverses the trip. There is no purpose for driving to the first facility other than to switch vehicles. (iii) The employee uses an employer's vehicle to travel from his home to a temporary work site, for example, to participate in surveillance activities. Instead of picking up the employer's vehicle in the morning, the employee takes the employer' vehicle home the night before.

Position: (i) Likely no benefit. (ii) Likely a benefit. (iii) Likely a benefit.

Reasons: (i) Although travel to and from an employee's work location is personal, in the case where such an occurrence is infrequent and irregular, there is likely no benefit. (ii) Since the first facility cannot be regarded as a work location (because no work is performed there by the employee) the trip between the first facility and the employee' work location would be regarded as personal since it is merely part of the trip between the employee's home and his or her work location. (iii) Travel between home and work is considered personal. However, per para. 5 of IT-63R5, travel from home to a point of call will be considered employment-related.

Principal Issues: As to whether form T1141, T1142 or T1135 is required to be filed?

Position: Form T1135 required to be filed if cost amount of the property in the trust exceeds $100,000. Form T1141 and T1142 not required to be filed.

Reasons: The trust is the person resident in Canada owning foreign property

Principal Issues: As to whether form T1141, T1142 or T1135 is required to be filed?

Position: Form T1135 required to be filed if cost amount of the property in the trust exceeds $100,000. Form T1141 and T1142 not required to be filed.

Reasons: The trust is the person resident in Canada owning foreign property

Principal Issues:
A taxpayer is in arrears in respect of child support payments set out in a court order. The child support is deductible by the payer under paragraph 60(b) of the Act and is required to be included in the income of the recipient under paragraph 56(1)(b) of the Act. A new order is issued after April 1997 which varies the child support amount payable in the initial order and sets out the amount of the arrears (the “Arrears”) that is not subject to the new regime. In the alternative, the new order may set out an amount (the “Reduced Arrears”) that is less than the amount of the arrears.

If the Arrears are paid to the Recipient in a year when all child support subject to the new regime has been paid, is the recipient required to include the Arrears in income? In the alternative, if the Reduced Sum is paid in similar circumstances, is the Reduced Sum required to be included in income?

Position:
The Arrears would be required to be included in the recipient’s income. On the other hand, the Reduced Arrears would not be taxable in the hands of the recipient if it was paid to obtain a release from a liability imposed by the first order (i.e., the “Reduced Arrears” cannot be identified as amounts payable periodically under the initial order).

Reasons:
The comments are consistent with paragraph 22 of the new draft IT on “Support Payments”.

Principal Issues:

1. Whether a trust with more than one beneficiary including charities as contingent beneficiaries can qualify under paragraph (g) of the definition of "trust" in subsection 108(1) of the Act?

2. Whether a perpetual fund trust can qualify under paragraph (g) of the definition of "trust" in that subsection?

Position: 1. No 2. No.

Reasons: Interests not vested indefeasibly and there are interests which may become effective in the future.

Principal Issues: Utilization of a subsidiary's losses

Position: loss realized by subsidiary deemed to be loss of the parent for the taxation year of the parent in which subsidiary's loss year ended. Revised previous opinion #964228.

Reasons: Short fiscal period did not restrict the loss available to parent to the year 2002.

Principal Issues:

Whether payout of sick leave credits on transfer from one position to another with the same employer constitutes retiring allowance.

Position: No.

Reasons:

Principal Issues: Application of loss denial rules to a foreign exchange loss realized on the payment of a loan owing to an affiliated person

Position: Loss denial rules do not apply

Reasons: Loss arises by virtue of the payment of the loan and not by virtue of the disposition of property to the creditor to which the loss denial rules apply

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.

	5-982013
XXXXXXXXXX 								J. Teixeira
(613) 957-2095
November 16, 1998

Dear Sir:

Re: Transfer of eligible capital property and redemption of shares received as consideration

Principal Issues: Individual was dismissed from her employment and as a result of treatment she received from former employer, individual suffered mental distress which required medical intervention. Individual has negotiated settlement with former employer and as part of settlement, individual receives amount for general damages for pain and suffering. Employer has withheld tax from damages for pain or suffering.
Is amount paid as damages for pain and suffering taxable?

Position: Question of fact.

Reasons: Paragraph 9 of IT-337R3 sets out our position on the treatment of the award of damages for wrongful dismissal and the treatment of damages in respect of pain and suffering. This position is also applicable to negotiated settlements of wrongful dismissal cases. General damages are not taxable where there is sufficient evidence to conclude that the damages are for personal injury and are in respect of the loss of employment, such as human rights violations.

Principal Issues:

Whether an amalgamated corporation formed by the amalgamation of a parent and a wholly-owned subsidiary can carry back its losses to offset taxable income of the subsidiary corporation.

Position:

No.

Reasons:

Principal Issues: Charitable corp - disposition of shares

Position: referred to IT-83R3 and IT-496

Reasons: see letter

Principal Issues:
Whether inflationary adjustments made to income under Mexican tax law are included in the determination of a foreign affiliate’s earnings amount under subsection 5907(1) of the Regulations.

Position: No

Reasons:
Such adjustments are purely notional and do not involve a payment or a receipt by a foreign affiliate. Moreover they have arguably little to do with the foreign affiliate's active business.

Principal Issues: Can a pension plan change the accounting method for properties from average cost to LIFO or FIFO.

Position: Generally no.

Reasons:
1) For capital properties: specific item method. (average cost method for identical properties only).
2) For inventory: FMV or the lesser of cost and FMV (cost: specific item method. If not practical: average or FIFO method for identical properties only - LIFO is not acceptable).
3) Changing the use of a method: question to tax services office.