Income Tax Severed Letters - 2001-03-02

Principal Issues: Whether land qualifies as qualified farm property under the definition in subsection 110.6(1) of the Act. The taxpayer received a 1/3 interest in a parcel of land prior to June 17, 1987, from her spouse's estate. The father-in-law passed away in 1990, leaving his 2/3 interest to the taxpayer. The land was farmed by the taxpayer's father-in-law for a period of more than 5 years during which he owned his interest in the land. During each of those 5 years, the father-in-law's gross income from farming exceeded all of his income from other sources.

Position: Question of fact. However, the 24-month gross revenue test in subparagraph (a)(vi) may be satisfied by the taxpayer's father-in-law, assuming the father-in-law relationship existed throughout the applicable 24-month period.

Reasons: In this regard, a parent includes a father-in-law pursuant to subparagraph 252(2)(a)(iii) and paragraph 252(1)(c) of the Act.

Principales Questions:
Un enfant majeur atteint d'une infirmité mentale ou physique peut-il recevoir libre d'impôt le REÉR de sa mère au moment du décès de cette dernière ?

Position Adoptée: Question de fait

Principal Issues:
Are cash awards for long-service taxable?

Principal Issues: whether senior who receive free tuition may claim the education tax credit

Position: no

Reasons: this is a benefit that is not available to the public at large

Principal Issues:
Are legal fees paid to enforce rights to a spouse's pension assets on a marriage breakdown deductible?

Position: No.

Reasons: Specifically prohibited under paragraph 60(o.1) of the Act.

Principal Issues:
An RRSP acquires a share of a mortgage investment corporation that is a qualified investment under paragraph 4900(1)(c) of the Regulations. Is a warrant that is issued with the share, giving the holder a right to acquire another identical share, a qualified investment?

Position: Yes.

Reasons:
Under 4900(1)(e), a right to acquire a qualified investment is also a qualified investment.

Principales Questions:

Est-ce que la somme convenue sera modifiée au sens de l'alinéa 85(1)c.1) de la Loi, dans le cas où, à la suite d'un rajustement du prix de base rajusté du bien transféré, la somme convenue est devenue inférieure à la limite prévue à ladite disposition, et que l'année d'imposition du cédant (année du transfert) est prescrite?

Position Adoptée:

Principal Issues:
Whether deduction taken by U.S. foreign affiliate in respect of a stock option plan where options for its shares are issued to its employees can be added back to earnings.

Position:
Since this is a notional deduction, it should not be deducted in the determination of earnings under Regulation 5907(1). However, if the foreign affiliate has compensated the Canadian parent, there should be no addback as the affiliate does not have that surplus.

Reasons:
See the summary on file 2000-002196, which deals with the same issue.

Principal Issues: Whether Hong Kong is considered part of China for purposes of paragraph 95(2)(a.1)

Position: Yes

Reasons: As a result of the unification of Hong Kong and the People's Republic of China, there is no reason, for purposes of paragraph 95(2)(a.1), to distinguish the two.

Principal Issues: Whether a particular series of transactions would be governed by section 86 of the Act

Position: Yes

Reasons: see attached interpretation

Principal Issues:
1. For the purposes of Regulation 4900(12) is there an acquisition of shares when 86(1) applies to an exchange of shares?
2. For the purposes of Regulation 4900(12) is there an acquisition of shares when 51(1) applies to an exchange of shares?
3. Where an RRSP holds shares of a corporation as a qualified investment , will the acquisition of additional shares by an RRSP or an annuitant of an RRSP cause the shares already held to become non qualified?

Position:
1. Yes.
2. Yes.
3. Not in normal circumstances.

Reasons:
There is an acquisition of shares under both 86(1) and 51(1) of the Act at the time of the exchange. However there may be a carryover of the cost amount of the shares for purposes of the provision.

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.

Principal Issues

Must a municipal alderman who will no longer seek re-election in an upcoming city election and has been given legal advice that she can keep the campaign funds accumulated to date include the contributions as income when and if she takes the funds?

Principal Issues:
An RRSP has acquired a real property as a consequence of a mortgage foreclosure and is attempting to sell it. Can the RRSP trust incur reasonable expenses to put the property in a salable state and for its upkeep?

Position:
Yes.

Reasons:
Real property can be held by the trust in accordance with the position stated in paragraph 10 of IT-320R2 Registered Retirement Savings Plans - Qualified Investments. It is appropriate that the trust should be able to maintain the property and make it salable.

Principal Issues: Whether a corporation's income from a partnership is income from a specified investment business. The partnership's only activity is the holding of real estate for the purpose of earning rental income, and it does not employ more than five full-time employees. However, the corporation, which itself has employees, acts as property manager for some of the properties held by the partnerships, while the other properties are managed by unrelated third parties.

Position: Question of fact.

Reasons: It would be necessary to confirm the legal relationship between all parties (i.e., whether a partnership or co-ownership exists), whether the employees were employed by the partnership or the corporation, and whether services are provided by an associated corporation such that it would be reasonably expected to require more than five full-time employees if those services had not been provided.

Principal Issues: examination of two separate scenarios involving trusts, affiliated rules & stop loss provisions

Position: In both scenarios presented the loss would be denied

Reasons: Where the trust controls the estate/trust before & after a redemption of shares, it is the trust that is affiliated regardless of the fact that the trustees are not affiliated.

Principal Issues: Whether Canada is precluded (by virtue of Article 14 of the Canada-Korea Income Tax Convention) from taxing a Canadian resident individual's income from employment in respect of personal services performed in Korea as a flight training instructor?

Position: No

Reasons: Paragraphs 1 and 2 of Article 14 do not affect Canada's right to tax a Canadian resident individual. Paragraph 3 of Article 14 does not apply to the facts of this case.

Principal Issues:
For the purposes of the definition of "qualified investment" in paragraph 4900(1)(i) of the Regulations and paragraph (g) of the definition of "foreign property" in subsection 206(1) of the Act will notes issued by a partnership be considered to be notes issued by each of the partners?

Position:
Yes, but each partner is jointly and severely liable for an undivided interest in the debt.

Reasons:
Under common law a partnership is a relationship and not a separate legal entity. As such, it cannot legally own assets or issue debt in its own right. The partners of a partnership all have undivided interests in all of the assets and liabilities of the partnership. The test for foreign property and qualified investment where debt is issued by a partnership is that each partner must satisfy the particular test applied as if the partner issued the debt itself directly to investors and not through the partnership. If the debt would not be a qualified investment if it was issued directly by one of the partners then all of the debt issued in the name of the partnership will be a non-qualified investment. Similarly, if one of the partners is a non-resident then all of the debt issued by the partnership will be foreign property. The test must be applied to any new member of the partnership in determining the status of the debt as foreign property and/or a qualified investment.

Principal Issues:
1) Will a period while an employee is off collecting WCB qualify for eligible service under an RPP?
2) Can WCB income be included in determining an individual's earned income under subsection 146(1) of the Act?

Position:
1) Question of fact.
2) No.

Reasons:
1) There is nothing in the Regulations preventing such service from being eligible. We would have to review the terms of the particular plan.
2) WCB income is not included in the earned income definition.

Principal Issues:
Is a locked-in LIRA that is registered as an RRSP for purposes of the Act subject to Part XI taxes on excess foreign property?

Position: Yes.

Reasons:
An RRSP is a taxpayer referred to in section 205 and it is subjected to taxes under Part XI of the Act.