Income Tax Severed Letters - 2002-09-27

Ruling

8 October 2002 Ruling 2002-0161333 F - COTISATION-ASSOC. DE FONCTIONNAIRE

Unedited CRA Tags
8(1)(I)(IV) 8(5)C)

Principales Questions:
Est-ce que les cotisations versées à XXXXXXXXXX sont déductibles en vertu du sous-alinéa 8(1)i)(iv) de la Loi?

Position Adoptée: Oui.

2002 Ruling 2001-0114683 - DSUS AS SECURITY FOR A LOAN

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will an amendment to a 6801(d) plan which permits participants to use the value of their deferred share units as security for a loan from their employer disqualify the plan from satisfying the conditions of paragraph 6801(d) of the Income Tax Act?

Position: No.

Reasons: The plan will continue to satisfy the requirements of paragraph 6801(d).

2002 Ruling 2002-0129803 - Reimbursement of Stock Option Benefits

Unedited CRA Tags
9 90 15(1)

Principal Issues: Whether payment from UKCO to Canco (parent) in respect of stock option benefits enjoyed by UKCO's employees taxable in Canco's hands

Position: No

Reasons: Not unreasonable for UKCO to provide "make-whole" payment to Canco

2002 Ruling 2002-0149813 - Stock Split and Amalgamation

Unedited CRA Tags
87(4.2)

Principal Issues:
1. Whether a stock split results in a disposition of shares.
2. Whether the Amalco shares will be "grandfathered shares".

Position:
1. No.
2. Yes.

Reasons:
1. It meets our requirements contained in Interpretation Bulletin IT-65.2. Subsection 87(4.2) is applicable.

Ministerial Correspondence

16 October 2002 Ministerial Correspondence 2002-0156414 - REPLACEMENT PROPERTY

Unedited CRA Tags
44(5)

Principal Issues:
The CCRA's interpretation of replacement property to exclude property purchased under a business expansion.

Position:
The CCRA interpret these rules to exclude situations where property is purchased under a business expansion plan. This is not to say, however, that the purchase of a larger property to replace a smaller property is automatically excluded from beneficial treatment under these rules. The appearance of a business expansion on the surface may not be the case once an appreciation of all the facts and circumstances surrounding a particular situation are known.

Reasons:
Subsection 44(5) and prior opinions

Technical Interpretation - External

24 October 2002 External T.I. 2002-0149365 - REPAYMENT-SPOUSAL SUPPORT

Unedited CRA Tags
60(c.2) 56.1(4) 60(b)

Principal Issues: During the taxation year 2002, one individual ("Individual A"), who decided to become a non-resident in the latter part of 2001, made spousal support payments to another individual ("Individual B") pursuant to a written agreement (which had been entered into many years ago). However, an alternative arrangement (concerning the making of spousal support payments under the agreement) has now been made and Individual A is now interested in having Individual B repay the amounts that Individual B received in 2002 that are otherwise required to be included in Individual B's income under paragraph 56(1)(b) of the Act (i.e., the repayment would be made pursuant to a subsequent agreement). The concern is whether Individual B would still be required to include the spousal support received in 2002 in income under paragraph 56(1)(b) of the Act.

Position. The support is required to be included in the income of Individual B under paragraph 56(1)(b) of the Act.

Reasons: As there is no provision similar to paragraph 60(c.2) of the Act with respect to a reimbursement made under a written agreement, it is our view that Individual B cannot claim a deduction for the reimbursement.

24 October 2002 External T.I. 2002-0160715 F - ASSURANCE-VIE IMPOSITION AUX TROIS ANS

Unedited CRA Tags
12.2(3) REG 306(1)
Summary Under
Tax Topics - Income Tax Act - Section 12.2 - Subsection 12.2(3)
determination of exempt policy status within bailiwick of insurer

Principales Questions:
Le contribuable doit-il s'imposer tous les trois ans en vertu de paragraphe 12.2(3) de la Loi?

24 October 2002 External T.I. 2002-0155925 - DEDUCTIBILITY OF DAMAGES

Unedited CRA Tags
18(1)(a)

Principal Issues: Whether an amount paid as "damages" is deductible in computing income.

Position: Question of fact.

Reasons: A payment for damages must be incurred for the purpose of gaining or producing income from a business and otherwise meet the criteria set out in 65302 BC Ltd. v. HMQ to be deductible in computing income.

22 October 2002 External T.I. 2002-0165295 - MEDICAL PRACTITIONER

Unedited CRA Tags
118.4(2)

Principal Issues: Does the cost of counselling services provided in Ontario by a person with a Masters of Social Work qualify as a medical expense under subsection 118.2(2) of the Act?

Position: No. An amount paid to a person for counselling services will only qualify as a medical expense if the service provided is a medical service and the provider is a medical practitioner

Reasons: A Masters of Social Work is not authorized under the laws of Ontario to provide medical services

22 October 2002 External T.I. 2002-0161565 - DIRECTOR & OTHER FEES

Unedited CRA Tags
6(1)(c)

Principal Issues: 1. Whether "honorarium" payments to the elected members of a university's student government are included in income pursuant to paragraph 6(1)(c) of the Act.

2. Whether "honorarium" payments to members of a legislated "board" to oversee enforcement of related legislation is included in income pursuant to paragraph 6(1)(c) of the Act.

Position: 1. Yes. 2. Yes.

Reasons: In both situations, the individuals are receiving fees "in respect of, in the course of, or by virtue of an office" within the meaning of "office" in subsection 248(1) of the Act.

22 October 2002 External T.I. 2002-0134635 - government assistance; tax credits

Unedited CRA Tags
127(18)

Principal Issues: whether a taxpayer is "entitled" or "can reasonable be expected" in the year to "receive" a tax credit (government assistance) where it has no tax payable

Position: Audit should formulate position

Reasons: actual past transactions, Audit is responsible for administering SR&ED program

22 October 2002 External T.I. 2002-0163825 - CAPITAL DIVIDEND ACCOUNT

Unedited CRA Tags
14(1.01)

Principal Issues:
What is meaning of the phrase "at that time" in paragraph 14(1.01)(b) of the Income Tax Act?

Position:
The words "at that time" in paragraph (b) refers to the time enumerated in the preamble, that is, "any time in a taxation year, a taxpayer disposes of an eligible capital property". Therefore, when electing under this provision, a taxpayer will be deemed to have disposed of a capital property on the actual date of disposition of the eligible capital property, not on the date the return of income is filed for the taxation year.

Reasons:
As noted above.

21 October 2002 External T.I. 2002-0141295 - Ownership of Shares

Unedited CRA Tags
186(4)(b)

Principal Issues: Is the "ownership" referred to in paragraph 186(4)(b) only "direct" ownership?

Position: Yes.

Reasons: The law - Subject to deeming provisions, such as paragraph 251(5)(b) which apply for specific purposes, there is no extension of the "ownership" referred to in paragraph 186(4)(b) to include "indirect" ownership (such as may be found in the definition of "specified shareholder" in subsection 248(1)).

18 October 2002 External T.I. 2002-0164755 - Stop Loss Rules

Unedited CRA Tags
40(3.3) 40(3.4)

Principal Issues: Comments on application of subsections 40(3.3) and 40(3.3)(3.4) to a particular fact situation.

Position: General comments provided.

Reasons: As noted above.

18 October 2002 External T.I. 2002-0143985 - REFINANCING PRESCRIBED RATE LOAN

Unedited CRA Tags
74.1(3) 74.5(2) 74.5(11)

Principal Issues : Refinancing of prescribed rate loan

18 October 2002 External T.I. 2002-0163615 F - Waiver of Capital Dividend

Unedited CRA Tags
56(2) 83(2)
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2)
s. 56(2) inapplicable to waiver of capital dividend

Principal Issues: Whether subsection 56(2) would apply to the waiver of a capital dividend by a taxpayer in the situation described.

Position: No

Reasons: No particular reason set out.

17 October 2002 External T.I. 2002-0146405 - SUBSIDIARY OF PUBLIC CORP.

Unedited CRA Tags
125(7)

Principal Issues:
1. Would Aco, which is wholly owned by a public corporation, which in turn is controlled by a Canadian resident (individual), be a Canadian-controlled private corporation before December 1, 1999 (i.e., prior to the applicability of the simultaneous control provisions in subsection 256(6.1) of the Act)?

Position:
1. No.

Reasons:
1. After 1995, paragraph 125(7)(b), at the definition of Canadian-controlled private corporation, would apply to exclude Aco from being a Canadian-controlled private corporation. This is so notwithstanding the Court's decision in Parthenon (97 DTC 5343), which was decided based on an earlier version of the same definition.

17 October 2002 External T.I. 2002-0130915 F - PAIEMENT FORFAITAIRE RETROACTIF

Unedited CRA Tags
110.2(2) 110.2(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.2 - Subsection 110.2(1) - Qualifying Amount - Paragraph (a) - Subparagraph (a)(i)
out-of-court settlement did not qualify

Principale Question:

Un montant de salaire rétroactif découlant d'un accord conclu entre une commission scolaire et une enseignante lors d'un règlement hors cour est-il un " montant admissible " aux fins de cette définition au paragraphe 110.2(1) de la Loi?

Position Adoptée:
Non

16 October 2002 External T.I. 2002-0159485 - TAXATION OF INDIAN RPP ROLLED TO RRSP

Unedited CRA Tags
81(1)(a)

Principal Issues:
Does tax-exempt status apply to rollover to RRSP of a status Indian beneficiary's interest in deceased status Indian's RPP?

Position: Likely yes

Reasons:
If RPP member's employment income was tax-exempt, and the beneficiary is a status Indian, the Guidelines exempt both principal & investment income from taxation.

16 October 2002 External T.I. 2002-0143215 - QUALIFIED INVESTMENTS AND RRSP

Unedited CRA Tags
146(2)(c.4) 251(1)(c) REG 4900(1)(j)

Principal Issues:
Whether a loan provided by the RRSPs of several minority shareholders of a corporation to the corporation would be a qualified investment for an RRSP?

Position:
Several questions of fact at issue. Question of fact whether a particular investment is a mortgage. Also, parties may not be arm's length, thus may not meet the conditions in 4900(1)(j). Also, may violate 146(2)(c.4).

Reasons:
High interest rate and terms may indicate the shareholders are acting in concert and thus not arm's length with the corporation. Also, the RRSPs may derive an advantage.

16 October 2002 External T.I. 2002-0161785 - BENEFITS-MOVING EXPENSES

Unedited CRA Tags
6(1)(a)

Principal Issues:
Whether or not a new employee receives a taxable benefit when the employer reimburses the cost of moving personal belongings and household goods upon relocation to Canada from a location outside of the country.

Position:
No

Reasons:
Paragraph 35 of IT-470R

15 October 2002 External T.I. 2002-0155205 - ASSETS USED PRINCIPALLY IN ACTIVE BUS.

Unedited CRA Tags
110.6(1) 248(1)

Principal Issues: Whether certain assets held by a corporation would be considered to have been used principally in an active business.

Position: Question of Fact

Reasons: Where the assets are required under contractual obligations and the disposition of such assets would be destabilizing on the business of the corporation, the assets would likely be considered to have been used in an active business.

11 October 2002 External T.I. 2002-0155555 - REPORTING DISPOSITON OF INSURANCE

Unedited CRA Tags
148(7) 163(2) 162(7)

Principal Issues:
Interpretation of ITR 217(2) in a situation where the original owner of a life insurance policy disposed of his/her interest in the policy to another party in a private sale.

Position: Applies if the insurer is notified in writing of the transfer

Reasons: Legislation

10 October 2002 External T.I. 2002-0160075 - POLITICAL CONTRIBUTION, NPO

Unedited CRA Tags
149(1)(l)

Principal Issues: Can an NPO make a political contribution?

Position: Question of fact

Reasons: It would depend on the purpose and activities of the NPO.

10 October 2002 External T.I. 2002-0149025 - SPOUSAL SUPPORT-TAXES

Unedited CRA Tags
56(1)(b) 56.1(4) 60(b)

Principal Issues: Monthly payments will be made during a year pursuant to a written separation agreement. Each payment will be comprised of an equal amount (the "Amount") specified in the written agreement for the support of the spouse plus an amount related to income taxes payable on the Amount. The issue is whether the monthly payments can be regarded as being an amount payable "as an allowance on a periodic basis for the maintenance of the recipient ... if the recipient has discretion as to the use of the amount" for the purposes of the definition of "support amount" in subsection 56.1(4) of the Act.

Position: Generally yes

Reasons: The position is consistent with comments in paragraph 10 of IT-530, and relevant case law.

10 October 2002 External T.I. 2002-0149185 - APPROVED STATUS-SR&ED

Unedited CRA Tags
37(7) 37(1)(a)(ii)

Principal Issues: Requesting "approved" status under subsection 37(7) of the Act.

Position: Approval denied.

Reasons: XXXXXXXXXX . Since the XXXXXXXXXX carries on activities other than SR&ED, we were unable to grant the request for approved status for the purpose of subparagraph 37(1)(a)(ii) of the Act.

10 October 2002 External T.I. 2002-0158335 - INCOME OF A CONTRACTOR

Unedited CRA Tags
9(1)

Principal Issues:
Whether a contractor who chooses to report income for tax purposes by including therein all amounts that have been billed (even though not approved for payment by the purchaser's architect or engineer, or in respect of which a mechanic's lien period has not expired) must do so for all of its contracts or is it acceptable to choose, on a contract-by-contract basis, which holdbacks to include in income.

Position:
Must include in income the holdbacks for all contracts.

Reasons:
See below.

10 October 2002 External T.I. 2002-0149235 - medical expenses-renovation

Unedited CRA Tags
118.2

Principal Issues: Whether renovation expenses qualify as medical expenses

Position: No, expenses do not meet the requirements set out in paragraph 118.2(2)(l.2)

Reasons: Question of fact - individual must lack normal physical development or impairment must affect mobility - severe and prolonged

9 October 2002 External T.I. 2001-0084055 - INTEREST DEDUCTIBILITY

Unedited CRA Tags
20(1)(c)

Principal Issues:
Interest deductibility on mortgage interest and on income-earning investments

8 October 2002 External T.I. 2002-0155775 - CHILD CARE EXPENSES

Unedited CRA Tags
63(1)

Principal Issues: Two individuals who have separated have joint custody of their child. Where one parent pays 100% of the child care expenses, is such a parent entitled to deduct the full amount pursuant to subsection 63(1)?

Position: In a true 50/50 custody arrangement, the parent would only be entitled to deduct 50% of the child care costs.

Reasons: Individual A is entitled to claim child care expenses; but only to the extent that they were, inter alia, incurred with respect to a period of time that the Child resided with him and enabled Individual A to engage in the activities listed in paragraph (a) of the definition of "child care expense" in subsection 63(3) of the Act.

23 September 2002 External T.I. 1999-0010175 - Liquidation; Anti-Circulatory Rules

Unedited CRA Tags
95(2)(e.1) 5904; 5905; 94

Principal Issues: (1) Whether paragraph 95(2)(e.1) applies to the liquidation of a foreign trust. (2) How anti-circularity provisions of paragraphs 5904(3)(b) and 5905(11)(a) of the Regulations to the Act apply to incestuous shareholdings?

Position: (1) No position taken under current legislation; "No", under current proposed legislation. (2) Depends on the facts but generally they apply to down stream dividends only.

Reasons: (1) Fundamental changes to section 94 as proposed. (2) Paragraphs 5904(3)(b) and 5905(11)(a) of the Regulations were enacted only to break the circle where there are circular shareholding structures in foreign affiliates.

Technical Interpretation - Internal

24 October 2002 Internal T.I. 2002-0140527 F - PENSION ALIMENTAIRE

Unedited CRA Tags
56.1(4)
Summary Under
Tax Topics - Income Tax Act - Section 56.1 - Subsection 56.1(4) - Support Amount
no discretion as to use of cheques if required to endorse them back to the payor

Principale Question:

Une entente mise sur pied pour tenir compte d'un changement de garde tout en évitant d'avoir à obtenir un nouveau jugement indique ce qui suit:

a. Monsieur continue, tel que stipulé dans le premier jugement, de verser sa contribution sous le régime de perception de pension alimentaire en vertu de la Loi facilitant le paiement des pensions alimentaires.

b. Madame ne perçoit pas les chèques reçus qu'elle endosse et remet à Monsieur. Elle lui remet également un second chèque équivalent au même montant.

Est-ce que les paiements sont assujettis aux anciennes règles sur les pensions alimentaires, c'est-à-dire déductibles pour le payeur et imposables pour le bénéficiaire ?

Position Adoptée:

Non.

23 October 2002 Internal T.I. 2002-0164607 - CONTINGENT LIABILITIES-SALE OF BUSINESS

Unedited CRA Tags
38 18(1)(e)

Principal Issues: Tax Consequences arising from sale of business where part of the consideration includes the assumption of contingent liabilities

Position: Vendor's proceeds includes fair market value of contingent liability assumed by purchaser; Purchaser's cost of assets would not include contingent liability until contingency is met.

Reasons: Consistent with prior opinions.

17 October 2002 Internal T.I. 2002-0159107 F - SALAIRE PAYE D'AVANCE

Unedited CRA Tags
5(1)
Summary Under
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1)
good argument that an advance to be repaid out of the final pay was advance wages rather than a loan
Words and Phrases
debt

Principales Questions:
Traitement fiscal d'un montant versé à un employé lors d'un changement des périodes de versement de salaires et de la récupération de ce montant lors de la dernière paie.

Position Adoptée:
Aucune conclusion définitive. Il y a des arguments pour dire que c'est un salaire payé d'avance. Un salaire payé d'avance est inclus dans le revenu d'emploi dans l'année de sa réception. Lorsqu'un salaire payé d'avance est récupéré par une diminution du salaire de la dernière paie, nous sommes d'avis que le montant reçu aux fins du paragraphe 5(1) est le montant réduit.