Income Tax Severed Letters - 1999-11-26

Principal Issues: (1) Does section 118.95 affect the calculation of Ontario tax credits on Form T1C?
(2) What is the effect of bankruptcy on the calculation of the Ontario tax credits?
(3) How does the individual's bankruptcy affect the calculation of the spousal deduction at 118(1) when (a) their spouse is not bankrupt in the year; (b) when their spouse becomes bankrupt at the same time as the individual; (c) when the spouse becomes bankrupt at a different time than the individual?

Position: (1) . The Ontario tax credits are credits available under the Ontario Income Tax Act. Section 118.95 of the Federal Income Tax Act does not affect the calculation of Ontario tax credits. Section 118.95determines the personal tax credits available in years in which an individual became bankrupt and prevents an individual from claiming more tax credits under sections 118 to 118.9 than he would have been entitled to had he not become bankrupt
(2) Since January 1, 1998 the Income Tax Act of Ontario requires the Ontario tax credits be calculated as if neither the individual nor their spouse become bankrupt during the year. Prior to 1998, only the individual's post-bankruptcy income was used in the calculation, plus their spouse's income for the whole calendar year, whether or not the spouse became bankrupt in the year.
(3) In all three situations, the income of the individual's spouse for the calendar year is allocated to match the two taxation years of the individual. The limitation in section 118.95 will prevent the individual from claiming more personal tax credits than would have been allowed had bankruptcy not occurred.

Principal Issues: Tax treatment of disbursements made to Union and Employer's Association on wind up of training trust fund?

Position: Question of fact whether the exemption in subsection 149(1) of the Act applies.

Reasons: IT-496. Paragraph 149(1)(k) & 149(1)(l) of the Act.

Principal Issues:

1) Can an individual who owned a home jointly with his wife participate in the Home Buyers' Program
2) What is the maximum withdrawal out of an RRSP for the Home Buyers' Program

Position:

Principal Issues:

Whether an LSVCC share (that is a small business property) will continue to be a "small business property" if it is transferred between a single annuitant's two RRSPs, between a single annuitant's two RRIFs, from an annuitant's RRSP to the same annuitant's RRIF or, pursuant to paragraph 146(16)(b), 146.3(14)(b) or 60(l), from an annuitant's RRSP or RRIF to the spouse's RRSP or RRIF.

Position:

Currently, only if all property of an RRSP is transferred to another RRSP of the same annuitant. Under proposed changes, also where transferred between RRIF and RRSP trusts of the same annuitant or of the spouse of the annuitant or to the spouse or the annuitant.

Reasons:

Current position that wholesale transfers between RRSPs of same annuitant do not result in disposition/acquisition and therefore meets requirement of definition of "small business property" that taxpayer who acquired the share is the original acquirer. Proposed definition of "small business property" says the various owners can be the 1) one who first acquired it (i.e. the registered plan trust) or 2) another RRSP or RRIF of the same annuitant or an RRSP or RRIF trust of the spouse of that annuitant, or 3) the annuitant or the spouse of the annuitant.

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 1999-000570

October 29, 1999

Dear XXXXXXXXXX:

Re: Your request for an Advance Income Tax Ruling

Principal Issues: Requested information about the expenses that may be deductible in respect of a proposed undertaking.

Position: General comments provided.

Reasons: Question of fact whether proposed undertaking will constitute the carrying on of a business.

Principal Issues: Whether delisted shares are qualified investments

Position: In some cases, yes.

Reasons: The shares may still be shares of a public corporation.

Principal Issues: Can amounts in a deceased annuitant's RRSP be paid to a discretionary trust for the benefit of a financially dependent disabled adult child of the deceased annuitant?

Position: Yes.

Reasons: The amount would constitute a refund of premiums for purposes of the Act. However, the 60(l) benefit for a rollover will only be allowed where the child is the annuitant under the RRSP or RRIF or the beneficiary under any annuity acquired with the funds.

Principales Questions:

Est-ce qu'une société, qui transforme un bien fourni par un client et qui ne vend pas lui-même le bien transformé, a droit à la déduction d'impôt pour BFT?

Position Adoptée:

Principal Issues:

What is the order of disposition of identical shares, some acquired under option and some not, for the purposes of section 7?

Position:

Prorata distribution out of the various pools

Reasons:

Principal Issues: Whether income inclusion that is spread over 4 years from conversion of ordinary IRA to Roth IRA is taxable in Canada where taxpayer was not a resident in Canada in the year of conversion.

Position: Unable to provide an opinion

Reasons: Draft legislation not yet released

Principal Issues:

1. Required explanation of rules on holding CCPC shares in an RRSP
2. Required explanation of regulations in respect to employer contributions to an RRSP withheld from employee wages.

Position:

Provided basic explanations of relevant law

Reasons:

Principales Questions:

Est-ce qu'un sous-traitant, qui transforme un bien fourni par un client et qui ne vend pas lui-même le bien transformé, a droit à la déduction d'impôt pour BFT si le bien produit est une composante d'un bien vendu par le client?

Position Adoptée:

Principal Issues:

Principal Issues: Does a grandchild have to actually be supported by the deceased, or will he be considered financially dependent if his income is below the threshold?

Position: Must be supported.

Reasons: Wording of "refund of premiums" in 146(1).

Principales Questions:
Est-ce que le revenu de profession qu'un XXXXXXXXXX gagne par le biais d'une société doit lui être réattribué à titre personnel?

Position Adoptée:
Non, s'il rencontre tous les critères au bulletin d'interprétation IT-189R2

Principal Issues: Whether the use of employer-provided vehicles in travelling between the employees' homes and their regular place of employment in certain circumstances (e.g. the employee will be on call) is of a personal nature.

Position: We have maintained the position that travel between the home and the regular workplace is of a personal nature..

Reasons: The main purpose of the trips is considered to be personal..

Principal Issues:

Principal Issues: Extent of liability of the legal representative of a taxpayer under subsection 159(1) of the Income Tax Act.

Position: Absent other circumstances, it does not appear that a lawyer or law firm would be considered to be a "trustee . . . or any other like person" where the lawyer or law firm holds funds in a trust account and disburses those funds to close a transaction.

Reasons: The legal representative of a taxpayer is a person who stands in the place of, and succeeds to the interest in property of, another individual or corporation. A legal representative represents the interests of, and oversees the legal affairs of, another person.

Principal Issues:

Principal Issues: Deductibility of Interest in a leveraged buy-out situation

Position: Generally deductible, but we would want to review any particular transaction before giving an unqualified opinion.

Reasons: IT-315

Principal Issues:

1. How do you measure whether a borrower enjoys all of the income derived from "money" which has been lodged as collateral under a security lending arrangement as required under paragraph 260(8)(a)?

2. Should the deemed fee in paragraph 260(8)(b) be calculated in the foreign currency or Canadian currency?

Position:

1. OK to use a comparative return on a deposit of similar quantum and duration.

2. Constant currency should be used using constant exchange rates.

Reasons:
1. Borrower does not have access to lender's records to determine the actual return earned on the money.

Principal Issues: Would the provisions of paragraph 66(12.6)(a) apply to reduce the amount available for renunciation for an amount of "assistance", related to the expenses in question and arising under the BC Mining Exploration Tax Credit, if the taxpayer has not applied for the BC METC or if the expenses in question are "deemed" to have been incurred due to the application of subsection 66(12.66).

Position: Whether a corporation can reasonably be expected to receive a particular amount of assistance at any time is a question of fact to be determined with reference to the facts of a particular situation. However, the fact that a corporation has a) not applied for the BC METC, or b) has been deemed to incur the expenses in question due to the application of 66(12.66) will not, in and by themselves, prevent a reduction from arising under paragraph 66(12.6)(a).

Reasons: Consistent with the "Technical Notes" issued by the Minister of Finance in June of 1986 concerning the addition of subsections 66(12.6) and (12.66) to the Act.

Principales Questions: Quels sont les critères pour déterminer si les activités d'une société sont principalement PCMC

Position Adoptée: q faits voir IT-290 pour liste non exhaustive