Income Tax Severed Letters - 2001-03-16

Principal Issues:
1. Could a status Indian who earns exempt income and has no RRSP contribution room for the year but nevertheless makes RRSP contributions be subject to the over-contribution RRSP tax in Part X.1?
2. If the status Indian withdraws the RRSP contributions and transfers the funds into a non-registered investment vehicle, such as a mutual fund or a GIC, which earns investment income that is taxable in the hands of the Indian, is the Indian entitled to claim the personal credits in ITA 118 as any other taxpayer?

Position:
1. Yes
2. Yes

Reasons:
1. See previous positions.
2. ITA 118 credits not based on whether taxpayer is or is not an Indian

Principal Issues:
What is required to make corporations listed on the tier 3 CDNX stock exchange (not a prescribed exchange) qualified investments for an RRSP?

Position: Question is too broad to provide an all-inclusive answer.

Reasons:
Referred to IT-320R2 (in particular paragraphs 5 and 15).
Enclosed standard letter on 4900(6)(a) and 4900(12)(a).

Principal Issues: Is vacation pay a "lump-sum, bonus or retroactive payment" as contemplated by subsection 100(3.2) of the Regulations?

Position: No

Reasons: Reversal of position in E9925045.

Principal Issues:
1. An individual, in his will, provides for a donation to be made to a private foundation to be established by the individual's estate. Would the donation qualify as a gift by will for the purposes of subsection 118.1(5)?
2. Where an individual's will stipulates that a specific amount is to be gifted to charity and provides a list of charities but the executor has discretion as to the allocation of funds to each named charity, would subsection 118.1(5) apply?

Position:
1. Yes, if the donation otherwise qualifies as a gift by will and the private foundation is a qualified donee at the time the gift is made.
2. Yes, if the executor acts reasonably and in accordance with the terms of the will and the donation is made to a charity that is a qualified donee.

Reasons: In our view, the wording of subsection 118.1(5) is broad enough to enable us to take this interpretation.

Principal Issues: Will the stratification of an apartment building in and of itself result in the conversion of the apartment building from capital property into inventory particularly where the intention of the taxpayer is not to sell the individual condominium units?

Position: Although the conversion of a capital property to inventory is always a question of fact it is likely that the mere act of stratifying an apartment building will not result in such a conversion.

Reasons: See letter referred to by the correspondent (i.e., E9302065) as well as paragraph 13 of Interpretation Bulletin 218R.

Principal Issues:
Will debt issued by a condominium corporation be a qualified investment for an RRSP?

Position: Yes, if certain conditions are satisfied.

Reasons:
Pursuant to paragraph 4900(1)(r) of the Regulations, debt of a condominium corporation will be a qualified investment for an RRSP if the corporation is without share capital, the corporation deals at arm's length with the annuitant and the beneficiaries of the RRSP, the taxable income of the corporation is exempt from tax pursuant to paragraph 149(1)(l) of the Act, and either (i) the debt is issued by the corporation as part of an issue of debt by the corporation for an amount of at least $25 million, or (ii) at the time of the acquisition of the debt by the plan trust, the corporation had issued debt as part of a single issue for an amount of at least $25 million.

Principal Issues: Whether the recapture of CCA on the disposition of rental property may be considered "income of the corporation for the year from an active business" within the meaning of the definition of this expression in subsection 125(7) of the ITA. The income from the rental property was not considered income from a specified investment business in prior years since the corporation employed more than 5 full-time employees. After the disposition, the corporation no longer employed more than 5-full time employees.

Position: No.

Reasons: The recapture of CCA will be considered income from a specified investment business since the corporation did not employ more than 5 full-time employees throughout the year.

Principal Issues:
Is the numerical example provided in 2000-0035415 inconsistent with the comments provided under the heading "Disposition of Identical Properties Acquired Under a Section 7 Securities Option" in Technical News No. 19?

Position: No.

Reasons:
The comments state that, where an additional security is acquired after the securities option is exercised, subsection 47(1) would apply to average the paragraph 53(1)(j) increase. The comments do not state that subsection 47(1) will not apply to the securities acquired under the securities option.

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

Are PHSP premiums, diapers and cost for care in a nursing home Deductible Medical expenses?

Position TAKEN
YES

Reasons FOR POSITION TAKEN
Par 2, 24, 31, 50, 65 of IT 519R2

Principal Issues: Does a reduction in legal stated capital of a private corporation's common shares (without a corresponding increase in the legal stated capital of any other class of shares) cause a corresponding reduction in the paid-up capital of the common shares or a change in the adjusted cost base of such shares if no payment is made.

Position: A reduction in the legal stated capital does reduce the paid-up capital of those shares. Provided no payment is made such a reduction it does not result in a change to the ACB.

Reasons: The law

Principal Issues: Treatment of payments under Forest Renewal BC program.

Position: Business income or bursaries.

Reasons: Section 9 and 56(1)(n)

Principal Issues: 1. When is an amount considered payable by a mutual fund trust (and therefore income to its beneficiaries)?
2. When is a deduction available to an EBP for amounts payable to its beneficiaries?
3. When is an income distribution by an EBP taxable to its beneficiaries?

Position: 1. At the time that the amount is paid to the beneficiary or the beneficiary was entitled in the year to enforce payment of the amount.
2. Only when actually paid.
3. Only when actually received.

Reasons: 1. Subsection 104(24). 2. Paragraph 104(6)(a.1). 3. Paragraph 6(1)(g).

Principal Issues:
Is the trust an affiliated person with a corporation controlled by another corporation which is personally controlled by the trustee where the trustee is the sole trustee of the trust for the purposes of subsection 40(3.6)?

Position: Yes.

Reasons: Affiliated by virtue of subparagraph 251.1(1)(b)(i) and paragraph 251.1(4)(a).

Principal Issues: Does taxpayer meet the function and status test such that he can avail himself of the 8(1)(c) deduction?

Position: It appears that he does.

Reasons: Provided the individual meets the status test, and provided he meets the function test as a result of 1) The individual is a minister and is engaged exclusively in full-time administrative service (paragraph 18 requires the function to be full-time) appointed by a religious organization (paragraph 20 of IT-141R) or
2) it is also arguable that the individual could be considered to be ministering to a congregation.(see Koop, Klassen & Rushton (Youth for Christ Employee)

Principal Issues:
1. In respect of an otherwise eligible relocation (ITA 248(1)) where the taxpayer moved for three months into a rental home at the new work location pending the sale of the old residence and then, after the sale, purchased a new residence, is a portion of the rental accommodation deductible in computing income under ITA 63(2)(c)?
2. Are the costs of weekend commuting back to the old residence, where the taxpayer's family resided while it was listed for sale, qualify as deductible expenses under ITA 63(2)(a)?

Position:
1. Yes
2. No

Reasons:
1. ITA 63(2)(c) permits the deduction of the cost of lodging near the old residence or the new residence for a period not exceeding 15 days.
2. ITA 63(2)(a) only permits the deduction of travel costs in the course of moving from the old residence at which the taxpayer ordinarily resided before the relocation to a new residence at which the taxpayer ordinarily resided after the relocation.

Principal Issues:
Will stock option plan administration fees charged by a parent corporation to its subsidiary corporation be deductible by the subsidiary corporation?

Position: Question of fact.

Reasons:
Plan administration and implementation costs are deductible by Canadian corporations where they are reasonable. In this case, we have no information to make this determination.

Principal Issues: Whether converting a society registered under the B.C. Society Act to a company under the B.C. Company Act would, in any way, change its non-profit status pursuant to paragraph 149(1)(l)?

Position: Depends on particular facts

Reasons: Wording of paragraph 149(1)(l) of the Act.

Principal Issues: What measuring stick does the Agency use to apply the criteria "all or substantially all the assets" in clause 110.6(14)(f)(ii)(A) and "all or substantially all of the assets" in section 54.2 of the Act ?

Position: Generally, 90 % or more of the FMV. However, other measuring sticks may be used depending on the circumstances.

Reasons: These provisions do not specify a measuring stick. The Agency's position in the 1989 CTF-RTQ 13 [E89130].

Principal Issues: Where an EPSP distributes property, other than money, to a trust for the benefit of a vested EPSP beneficiary, will subsection 144(7.1) apply to deem the EPSP not to have disposed of the property?

Position: No.

Reasons: Subsection 144(7.1) applies to distributions by the EPSP trust to the beneficiary. Since the distribution is to a trust for the benefit of a beneficiary of the EPSP, we have to look at the new definition of disposition to make this determination.

Principal Issues:
Follow-up to our letter in file 992821, to clarify the time of application of the position explained in that letter.