Income Tax Severed Letters - 2000-07-07

Principal Issues: Non-arm's length transfer of an eligible capital property by an individual to a corporation followed by a sale to an arm's length person. Is the corporation's CDA reduced by paragraph 20(1)(b) deductions claimed by individual.

Position: No but consideration of the application of subsection 69(11) is required.

Reasons: The law.

Principal Issues: 1) When there is a transfer of a small business property from one RRSP trust to another of the same annuitant, or from an RRSP to a RRIF trust of the same annuitant, does the transferee trust obtain a "small business property"? 2) Is the transferor's "cost amount" preserved as the "cost amount" to the transferee for purposes of calculating the "small business investment amount"? 3) Would the answers to 1) and 2) be the same if the transferee trust received only a portion of the transferor's property or already held its own property before the transfer?

Position: 1)Yes; 2) Yes; 3) Yes transferee would obtain a "small business property" and, yes, generally property's cost would be preserved.

Reasons: 1) The definition of "small business property" is proposed to be amended to allow certain inter-plan trust transfers by a single annuitant or between such trusts of spouses and not lose the 3-for-1 bump in foreign property room. 2) The "cost amount" to the transferee will generally be the cost to the transferor trust for one of two reasons: (a) because it is the position of the Agency as expressed in IT-412R2 that wholesale transfers of property between RRSP trusts of the same annuitant do not result in a change in trust ownership - a disposition - and therefore occur at cost; or (b) because of proposed amendment to exclude wholesale transfers of property between or among RRSP or RRIF trusts of the same annuitant from the definition of "disposition" [proposed paragraph(g) of subsection 248(1) definition; 3) a transfer of a single small business property does not cause it to lose its status as a small business property under the proposed definition of "small business property" and although it will be a "disposition", the proposed amendments to 107.3(1),(2),(3) generally result in these transfers between trusts of the same annuitant occurring at cost.

Principales Questions:
Les sanctions pécuniaires proposées par l'ADRC en vertu du RSAP sont-elles déductibles sous 18(1)a) LIR compte tenu de la décision de la Cour Suprême du Canada dans l'arrêt 65302 B.C. Ltd (99 DTC 5799).

Position Adoptée:
Nous ne sommes pas en mesure de répondre actuellement à cette question puisque nous procédons à un examen de notre position à la lumière de cette décision.

Principal Issues: Meaning of the word "distributed"-as used in p.2 of Article XXII of the Canada-U.S. Convention

Position: word distributed also applies to amounts credited in this case

Reasons: as 214(3)(f) deems amounts to be paid or credited & does not differentiate between the two amounts, therefore an amount deemed to be paid or credited would be subject to p.2 of Article XXII

Principal Issues: Are expenses incurred for umbilical cord blood extraction, processing and storage eligible medical expenses?

Position: No

Reasons: Paragraph 118.2(2)(a) of the Act does not apply since payments must be in respect of medical services which must involve a medical condition and such a condition does not apply. Paragraph 118.2(2)(o) of the Act does not apply since we are not dealing with a diagnostic procedure.

Principal Issues: (1) Whether income loss disability payments under a personal insurance policy from a source in Switzerland must be included in income in Canada.
(2) Whether disability payments under a Swiss government pension scheme similar to Canada's Old Age Security must be included in income in Canada.
(3) Whether Canada can tax payments in (2) above under the Canada - Switzerland tax convention.

Position: (1) No (2) Yes (3) Yes

Reasons: (1) Treatment of similar Canadian source payments.
(2) Question of fact. Likely is pension income under sub-paragraph
56(1)(a)(i).
(3) Canada retains the right to tax annuity and pensions under Article 18 of the Canada - Switzerland tax convention.

Principal Issues: Is the cost of a massager referred to as a Mini Thumper Massager an allowable medical expense pursuant to subsection 118.2(2) of the Act?

Position: No.

Reasons: A massager is not included in any of the paragraphs of subsection 118.2(2) of the Act. It is also not included as a devise or equipment that is prescribed in section 5700 of the Income Tax Regulations.

Principal Issues: Whether the mere rental of property constitutes the provision of "goods or services" within the meaning of proposed 120.4, the "split income" tax.

Position: No.

Reasons: The concept of rentals as distinct from the provision of goods and services is evident in 20(1)(m).

Principal Issues: Whether a rate of $0.50 per kilometer motor vehicle allowance would be more reasonable.

Position: Question of fact but under paragraph 18(1)(r) of the ITA, in order for an employer to deduct more than the prescribed amount, the allowance must be a reasonable amount and be included in the employee's income.

Reasons: As it is a question of fact, only general comments provided.

Principales Questions:
Est-ce que les primes payées à un régime distinct d'assurance invalidité pour longue durée par un employé afin de prolonger sa couverture au-delà des 104 semaines prévues par un premier régime de base auquel seul l'employeur contribue, sont déductibles à l'encontre des prestations d'assurance-salaire imposables qu'un employé reçoit en vertu du régime initial soit dans une situation où l'employé serait absent pour une période inférieure à 104 semaines ?

Position Adoptée:
Non. Seules les cotisations qu'un employé a versées à un régime donné qui est visé par l'alinéa 6(1)f) sont déductibles et ce, à l'encontre des prestations provenant de ce même régime.

Principales Questions:

1. Les actions d'une société détenues par son unique actionnaire, dans la situation donnée, pourraient-elles jouir de la règle transitoire, prévue à l'alinéa 131(11)b) de la Loi de 1997 modifiant l'impôt sur le revenu, relative au paragraphe 112(3) de la Loi?

Whether the grandfather rule provided under 131(11)(b) of the Income Tax Amendments Act, 1997, related to s.s. 112(3) of the Act would be applicable in the particular situation where shares of a corporation were owned by a sole shareholder?

2. La protection offerte par la règle transitoire, quant à la disposition des actions d'une société, pourrait-elle être perdue du simple fait qu'une filiale acquise après le 26 avril 1995 par la société donnée souscrive à une police d'assurance-vie?

Whether the benefit of the particular grandfather rule with respect to a disposition of a share of the capital stock of a corporation is lost in a situation where a subsidiary acquired by the corporation after April 26, 1995, subscribe to a life-insurance policy?

Position Adoptée:

Principal Issues: Comment fonctionne l'interaction entre les paragraphes 55(2) et 186(1) dans la situation présentée?

Position: Le paragraphe 55(2) s'applique à la totalité des dividendes. Aucun impôt de la Partie IV.

Reasons: Libellés des paragraphes 55(2) et 186(1). Si les sociétés étaient assujetties à l'impôt de la partie IV, le montant ferait l'objet d'un RTD.

Principal Issues:
General discussion of paragraph 149(1)(d.5). How does paragraph 149(1)(d.5) apply in various examples.

1) Would corporations filing tax returns in Quebec be exempt from tax pursuant to 149(1)(c)?
2) Would a First Nations geographical boundary be limited to its own reserve?
3) Can a Tribal Council be considered a municipality in Canada?

Position:
1) No,
2) Yes
3) No position given.

Reasons: 1) The Tawich position disagreed with the Otineka case and concluded that an Indian Band could not be considered a municipality for purposes of paragraph 149(1)(c) of the Act.
2) In the case of a First Nation that is a municipality, the geographical boundaries would encompass the First Nation's reserve lands and would not include other reserves
3) This issue has not been addressed by the Agency. We have not been provided sufficient information on which to make a determination.

Principal Issues: Two lives are named under a last-to-die life insurance policy. Whether or not the payment to be made to a beneficiary upon the death of the first person to die would be an amount described in paragraph (j) of the definition of "disposition" in subsection 148(9).

Position: No

Reasons: Since there is no mortality risk with respect to the person that is first to die the payment would not be in respect of a person whose life is insured under the policy.

Principal Issues:
Whether subsection 70(5.3) applies to multiple life policies.

Position:
No.

Reasons:
The wording of subsection 70(5.3) contemplates that there can only be a single life insured under the policy.