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:
1. Can a corporation report employment income?
2. Does the corporation get the 110(1)(d) deduction?

Position:
1. Yes
2. No if the corporation did not exist at the time the option was granted.

Reasons:
1. The corporation is "deemed" to have received employment income by paragraph 7(1)(c).
2. Clause 110(1)(d)(ii)(B) requires that the corporation was arm's length to the grantor at the time of the grant.

Principal Issues: How does section 34.2 of the Act apply when a professional moves his or her practice from Hull, Quebec to Ottawa, Ontario.

Position: The taxpayer is required to include in income the reserve taken in the previous year and may claim a reserve to the extent permitted in subsection 34.2(4) of the Act.

Reasons: The two tax systems (Federal and Quebec) seem compatible in respect to the reserve when there is a move between Quebec and another province.

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.

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:
Whether "non-Christian healers who provide healing through prayer" qualifies as a "medical practitioners" under the Act.

Position:
Likely not.

Reasons:
Paragraph 118.4(2)(a) of the Act provides that, for the purposes of section 118.2 of the Act, a reference to a "medical practitioner,"etc. means, for a service rendered, a person who is authorized to practice as such according to the laws of the jurisdiction in which the service is rendered. Accordingly, one must look to provincial legislation to determine whether payments to a medical practitioner will qualify for the medical expense tax credit.

Principal Issues:
Can the legal representative of a deceased taxpayer make the election on behalf of the deceased taxpayer to have the common-law partner rules apply prior to 2001?

Position: Yes.

Reasons:
It was intended that the deceased taxpayer's legal representative be allowed to make the election. Refer to IRPPD E-Mail to deferred plan administrators.

Principal Issues:
Can we provide various opinions regarding the taxation of benefits under various incentive plans that will be offered by a U.S. corporation to employees of a related Canadian corporation?

Position: No.

Reasons:
The opinions would relate to proposed transactions and the terms of the various incentive plans are not available. The client should request a ruling.

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: 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:
1. Does subsection 74.4(2) of the Act apply in a typical estate freeze?

Position:
1. Yes.

Reasons:
1. The issue of whether it is reasonable to consider that one of the main purposes of the transfer of property is to reduce the income of the individual and to benefit a designated person is based on a question of fact

Principales Questions:

Est-ce que le syndicat qui intente une poursuite contre un employeur et qui perçoit des dommages-intérêts considérés comme du revenu d'emploi pour un employé doit effectuer des retenues à la source sur ce revenu lorsqu'il le verse à l'employé ?

Position Adoptée:

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.