Income Tax Severed Letters - 2001-06-08

Principal Issues: What is the treatment of losses from mining operations, incurred before achieving production in reasonable commercial quantities?

Position: Although pre-production revenue may fall within the ambit of subsection 66(12.1) and a taxpayer's CCEE balance would be reduced, on an administrative basis, there has been a long-standing agreement between industry and the CCRA whereby the CCRA agreed not to object where a Canadian exploration expense was reduced by the related pre-commercial production revenue.

Reasons: Established position.

Principales Questions: Quel est le revenu gagné en main attribuable aux actions à dividendes discrétionnaires dans la situation présentée?

Position Adoptée: Nul

Principal Issues: Whether a capital loss can be claimed where depreciable property whose cost base was bumped-up, as a result of the capital gains election allowed in 1994 under subsection 110.6(19) of the Act, is disposed of at an amount between its original capital cost and its new bumped-up cost.

Position: No.

Reasons: A capital loss is specifically denied in respect of a loss from the disposition of depreciable property as a result of the application of subparagraph 39(1)(b)(i) of the Act and a terminal loss does not result by virtue of paragraphs 13(7)(e) and (e.1) of the Act. This treatment is generally applied to transactions involving non-arm's length parties, particularly those involving the use of the capital gains deduction. An amendment to the Act is required to obtain the results sought by the taxpayer.

Principal Issues: Does a co-operative incorporated under the Cooperatives Act of Manitoba qualify for the Indian Act exemption?

Position: No

Reasons: A corporation is not an Indian or band under the Indian Act.

Principales Questions:
Dans la situation présentée, la réduction visée par le paragraphe 86(2.1) de la Loi ramène-t-elle le capital versé des nouvelles actions à celui des anciennes actions?

Position Adoptée:
Oui.

Principales Questions: L'existence d'une clause de survie dans un testament empêche-t-elle systématiquement l'application du paragraphe 70(6) de la Loi?

Position Adoptée: L'existence d'une clause de survie classique de 30 ou 60 jours prévue dans un testament n'empêchera pas, en soit, l'application du paragraphe 70(6) de la Loi si le conjoint survivant survit le testateur au-delà du délai prévu par cette clause.

Principal Issues:
Whether a Review Program at a Canadian University aimed at candidates wishing to write the CMA final exams qualifies for the tuition credit and the education credit.

Principal Issues:
In a given fact situation whether
(1)the two corporations are connected ?
(2) the dividend recipient is liable to pay Part IV tax if the dividend payor is connected and has or not received a dividend refund ?
(3) a deemed dividend is to be treated the same way as an ordinary dividend for the purposes of Part IV and of dividend refund ?
(4) the individual shareholder ultimately could be the only person to pay tax on a dividend ?

Position:
(1) Yes.
(2) Yes, if the dividend payor is entitled to a dividend refund unless the dividend recipient can claim losses to offset the Part IV tax - No, if the dividend recipient is not entitled to a dividend refund.
(3) Yes.
(4) Generally, yes.

Reasons:
(1) The law - Ss. 186(2) and (4).
(2) The law.
(3) See case Placements Serco Ltée 88 DTC 6125.
(4) Provided that no Part IV tax is payable by the particular corporation.

Principal Issues: In a situation where corporations, each controlled (de jure and
de facto) by a different corporation, own an interest in a general partnership varying between 7% and 24 %; whether one of the corporations could become associated to one or more of the others, pursuant to subsection 256(1), if one of the corporations increased its interest in the partnership to 25% or more ?

Position: No.

Reasons: Increasing the partnership interest does not, by itself, change who controls any of the corporations de jure or de facto for the purpose of the association rules in section 256.

Principal Issues: We were provided with some limited information about a corporation and its employees. Some of the employees are Indians. A number of queries were raised.

Position: General comments and some CCRA publications were provided.

Reasons: Limited information was provided.

Principal Issues:
Any income tax considerations of community network engaging in barter transactions.

Position TAKEN:
Transactions are subject to Income Tax Act. Provided copy of and general guidance based on IT-490, Barter Transactions, and copy GST/HST News No. 34 Fall 1999.

Reasons: N/A