Income Tax Severed Letters - 2003-06-06

Miscellaneous

5 May 2003 2003-000323A70 - CEE-DYKE Construction - Resource Profits

Unedited CRA Tags
66.1(6) 9 1204

Principal Issues:
Whether refund interest resulting from overpayment of tax could be included in the calculations of resource profits and resource allowance for the purposes of sections 1204 and 1210 of the Regulations, respectively?

Position:
No

Reasons:
Based upon the jurisprudence, the expressions "business of production" and "income from production" are used in the narrow sense for purposes of paragraph 1204(1)(b) of the Regulations. In the case at hand, there is a respectable argument that refund interest resulting from overpayment of tax should not be included in "income from production" because it is not directly related to any actual resource production.

5 May 2003 2003-000323B70 - CEE-DYKE Construction - Resource Profit

Unedited CRA Tags
66.1(6) 9 1204

Principal Issues:
Whether dyke construction costs (i.e., a dyke may be built to retain water, tailings or landfills) should always be on account of current expenses or Canadian exploration expenses?

Position:
No

Reasons:
It is always a question of facts as whether certain dyke construction costs should be considered as current expenses, depreciable property costs or pre-production Canadian exploration expenses.

Ruling

2003 Ruling 2003-0016823 - STRUCTURED SETTLEMENT

Unedited CRA Tags
56(1)(d)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues

2003 Ruling 2003-0182813 F - ENTREPRISE EXPLOITEE ACTIVEMENT-REDEVANCES

Unedited CRA Tags
125(7) 248(1) 110.6(1)

Principales Questions:
Est-ce que Société Y, qui tire des revenus de redevances d'une société liée pour l'utilisation de brevets détenus et développés par Société Y, répond à la définition d'" entreprise exploitée activement " que l'on retrouve au paragraphe 248(1) de la Loi ?

Est-ce que les brevets détenus par Société Y constituent des éléments d'actif utilisés principalement dans une entreprise que la société ou une société liée exploite activement principalement au Canada ?

Position Adoptée:
Oui, dans la situation qui nous a été soumise.

2003 Ruling 2002-0174053 - Internal Reorganization

Unedited CRA Tags
55(3)(a) 85(1)

Principal Issues:
Where in an in-house loss utilization scheme, within an affiliated group, whether a disposition, by a taxpayer of its depreciable properties to an unrelated person, would be exempt under subparagraph 55(3)(a)(i)(B) of the Income Tax Act?

Position:
Provided that the proceeds of disposition of the depreciable properties are not less than the aggregate fair market value of the depreciable properties at the time of the sale, such disposition would be exempt under subparagraph 55(3)(a)(i)(B).

Reasons:
As stated above.

2003 Ruling 2003-0184043 F - REGIM D'OPTIONS D'ACHAT D'ACTIONS

Unedited CRA Tags
7(1)b) 7(3)b) 110(1)d)

Principales Questions:
1) Est-ce que la modification à une convention d'achat d'actions pour faire en sorte que les employés pourront choisir de recevoir un paiement en espèces ou des actions est une disposition des options et aura pour effet d'inclure un montant dans le revenu des employés selon l'article 5, 6 ou 7?
2) Est-ce que l'alinéa 7(1)b) s'applique dans le cas où un employé a le droit de choisir une somme en espèces plutôt que des actions en vertu d'une convention d'achat d'actions?
3) L'employé a-t-il droit à la déduction prévue à l'alinéa 110(1)d)?
4) L'alinéa 7(3)b) empêche-t-il la société et ses filiales de déduire les sommes versées?
5) Le paragraphe 105(1) du Règlement s'applique-t-il aux montants versés par la société pour la filiale américaine à des résidents des Etats-Unis?

2003 Ruling 2002-0178933 - AMENDED PLAN

Unedited CRA Tags
6801(d)

Principal Issues: Will the proposed amendments to an existing DSU plan result in the plan ceasing to qualify under paragraph 6801(d) of the Regulations?

Position: No

Reasons: Plan still complies with 6801(d) provisions

2003 Ruling 2003-0002873 - Butterfly Transaction - Papillon

Unedited CRA Tags
55(3)(b) 55(3.1) 55(2)

Principal Issues: Split-up butterfly transaction.

Position: Favourable rulings provided.

Reasons: Meets the requirements of the law.

2003 Ruling 2003-0010273 - LONG-TERM DISABILITY PAYMENTS

Unedited CRA Tags
6(1)(F) 6(1)(A)

Principal Issues:
Are the long-term disability payments received by the taxpayer included in income for the period when the Cox v. Carter Order applies to the amounts.

Position: No.

Reasons: The taxpayer must hold in trust for the defendants, all long-term disability payments received from the insurer until such time as the defendants have received the amounts they were ordered to pay under the Judgment.

2003 Ruling 2003-0013413 - STRUCTURED SETTLEMENT

Unedited CRA Tags
6(1)(F) 12(1)(C)

Principal Issues:
A taxpayer suffers from a condition diagnosed as XXXXXXXXXX . The taxpayer is totally disabled and filed a disability claim with XXXXXXXXXX employer's disability insurer. The disability insurer denied liability under the insurance plan and the taxpayer commenced an action against the insurer. Pursuant to a proposed "periodic payment and release" agreement to be entered into by the taxpayer and the insurer, the taxpayer will receive a lump-sum payment and periodic payments. The insurer will assign its rights and obligations to provide for periodic payments to another insurer who will purchase a single premium annuity contract and make periodic payments to the taxpayer. Will any portion of these annuity payments be included in computing income, for income tax purposes, of the taxpayer?

Position: No.

Reasons: The terms of the settlement are consistent with the CCRA's views on amounts received as "Damages, Settlements and Similar Receipts" as discussed in IT-365R2. The assignee will be the annuitant under the annuity contract, not the taxpayer.

Ministerial Correspondence

6 June 2003 Ministerial Correspondence 2003-0017114 - OTHER DEDUCTIONS-LEGAL FEES

Unedited CRA Tags
60(o)

Principal Issues: Is a specific provision of the Act which would compensate a Canadian taxpayer for legal/professional costs incurred in defence of an action initiated under the Act.

Position: Yes

Reasons: Subparagraph 60(o)(i) entitles a taxpayer to deduct fees or expenses incurred in preparing, instituting or prosecuting an objection or an appeal in relation to an assessment of tax, interest or penalties under the Act or an Act of a Province that imposes a tax similar to the tax imposed under the Act.

2 June 2003 Ministerial Correspondence 2003-0016804 - INVESTMENT HELD BY AN RRSP

Unedited CRA Tags
207.1

Principal Issues:
Follow up reply to 2003-000907 XXXXXXXXXX
Taxation of corporate securities held in an RRSP after corporation is bankrupt or reorganized.

Position:
Limited explanation of the tax law was provided based on information available on the web pertaining to the particular corporation.

Reasons:
XXXXXXXXXX

29 May 2003 Ministerial Correspondence 2003-0016004 - EMPLOYMENT EXPENSES TEACHER'S SUPPLIES

Unedited CRA Tags
8(1)(i)(iii)

Principal Issues: Can a teacher deduct claim a deduction for the cost of supplies used in the classroom?

Position: Where the requirement of subparagraph 8(1)(i)(iii) have been met, the teacher will be entitled to a deduction under the Act. Must be able to show that there is an express or implied requirement to provide the supplies.

Reasons: Subparagraph 8(1)(i)(iii) of the Act provides a deduction in computing income from employment for the cost of supplies consumed directly in the performance of the duties of employment when the employee is required to provide and pay for such supplies.

Technical Interpretation - External

6 June 2003 External T.I. 2003-0010865 - NORTHERN RESIDENCE DEDUCTION

Unedited CRA Tags
110.7(1) 6(6)

Principal Issues: Whether an individual is entitled to a deduction pursuant to subsection 110.7(1) of the Act or entitled to a deduction for travel expenses when computing income from employment.

Position: Not entitled to subsection 110.7(1) deduction or claim any travel expenses.

Reasons: Did not reside in the prescribed zone for the "qualifying period" and did not incur travel expenses in excess of amounts paid by the employer.

6 June 2003 External T.I. 2003-0018815 - CHILD CARE EXPENSES

Unedited CRA Tags
63(1)

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

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

Reasons: Since each parent resides with the child where there is shared custody and assuming that neither is residing with a "supporting person" during the year, each parent could claim child care expenses incurred in a taxation year for an eligible child if, inter alia, the expenses were incurred at the time the parent resided with the child and only to the extent that they were paid by that parent to enable the parent to engage in the activities listed in paragraph (a) of the definition of "child care expense".

6 June 2003 External T.I. 2003-0012135 - REPLACEMENT PROPERTY

Unedited CRA Tags
44(5)(a.1) 13(41)(a.1)

Principal Issues: Whether a particular property would be considered "used by the taxpayer ... for a use that is the same as or similar to the use to which the taxpayer ... put the former property", as required by the definition of replacement property in paragraph 44(5)(a.1) of the Act, if that use does not actually occur until after the expiration of the time period during which a taxpayer must acquire the replacement property.

Position: No.

Reasons: When subsections 44(5) and 13(4.1) are read in context with subsections 44(1) and 13(4), it means the taxpayer or a person related to the taxpayer must commence using the particular property for a use that is the same as or similar to the use to which the taxpayer or a person related to the taxpayer put the former property before the expiration of the time period during which the replacement property must be acquired. For an involuntary disposition the use must commence within two years from the end of the taxation year during which the disposition occurred, and for a voluntary disposition, it must commence within one year following the end of the taxation year during which the disposition occurred.

4 June 2003 External T.I. 2003-0013645 - DISPOSITION INVESTMENT CONSEL FEES

Unedited CRA Tags
20(1)(bb) 230

Principal Issues:
Are expenses paid for investment counsel fees from a disposition of securities still require the T5008 form to be issued.

Position: Generally Yes.

Reasons:
Two transactions, a disposition of securities and the use of the funds to pay investment counsel fees

3 June 2003 External T.I. 2003-0017085 - POSTAMBLE AND EBITDA

Unedited CRA Tags
212(1)(b)

Principal Issues:
Whether interest paid to a non-resident under the terms of a loan agreement that contains a provision for adjustments, from time to time over the term of a loan, to the stated interest rate (the "cap rate") that are based on the EBITDA of the borrower falls within the ambit of the broad wording in the postamble of paragraph 212(1)(b) of the Act?

3 June 2003 External T.I. 2003-0017995 - Corporate Instalments

Unedited CRA Tags
157(1) 157(3)

Principal Issues: Does a prior year's dividend refund reduce a corporation's first instalment base?

Position: No.

Reasons: The law.

3 June 2003 External T.I. 2003-0012075 F - Safe Income and 104(13.1) Designation

Unedited CRA Tags
55(2) 55(5) 104(13.1)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c)
income retained by a trust under s. 104(13.1) and then distributed to its corporate beneficiary was not included in the latter’s safe income

Principal Issues: Whether, in a particular situation where a personal trust would designate an amount in respect of its corporate beneficiary under subsection 104(13.1), such amount would be included in determining the corporate beneficiary's safe income or safe income on hand.

Position: No.

Reasons: Subsection 55(2) refers, among other things, to the notion of "income earned or realized by any corporation." The expression "income earned or realized by a corporation" is deemed to be the amount determined pursuant to paragraph 55(5)(b), (c), or (d), as the case may be. Consequently, safe income with respect to a share of a corporation refers to the corporation's net income, as determined for the purposes of the Act, as adjusted by paragraph 55(5)(b), (c), or (d), as the case may be, that is attributable to that particular share during the relevant holding period. In the given situation, the amount distributed by the trust to the corporate beneficiary would not be included in the corporation's income pursuant to subsection 104(13.1). This amount would be taxed at the trust's level. Consequently, the amount distributed could not increase the corporation's safe income or safe income on hand. Furthermore, the amount distributed by the trust could not be included in the corporation's safe income or safe income on hand on the basis of a "consolidation principle." CCRA's position has always been that the requirement to "consolidate" safe income within a corporate group is based on the express terms of subsection 55(2) which refers to "income earned or realized by any corporation." Paragraphs 55(5)(b), (c) and (d) also expressly refer to "income earned or realized by a corporation." Consequently, the terms of these provisions limit the consolidation of safe income to safe income generated in a corporation within a corporate group, and thus to amounts that have been included in such corporation's net income, as determined for the purposes of the Act and as adjusted by paragraph 55(5)(b), (c), or (d), as the case may be.

3 June 2003 External T.I. 2003-0015675 - LUMP-SUM PREPAYMENT OF AUTO LEASE

Unedited CRA Tags
18(9) 67.3

Principal Issues:

2 June 2003 External T.I. 2003-0002485 - DEBT FORGIVENESS-GIFT FUND

Unedited CRA Tags
80
Summary Under
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4)
Summary Under
Tax Topics - Income Tax Act - Section 80 - Subsection 80(13)

Principal Issues: Whether our position in document #E9208835 remains applicable.

Position: Yes.

Reasons: The gift of funds by a creditor to a debtor to allow the repayment of the debt is an indirect forgiveness of debt.

2 June 2003 External T.I. 2003-0004115 - GIFTING SPLIT DOLLAR AND SHARES

Unedited CRA Tags
38.1 118.1 38(a.1)

Principal Issues:
1. Whether a tax receipt could be issued in a situation involving a life insurance policy under a split dollar arrangement.
2. Whether the reduced inclusion rate under paragraph 38(a.1) would apply to part of a capital gain realized by an individual on the donation of publicly traded securities to a registered charity if the individual receives partial consideration.

Position:
1. Depends on the facts of the particular situation. Provided general comments only.
2. Yes, to the extent permitted by proposed section 38.1 of the draft legislation released on December 20, 2002.

Reasons:
1. Such a determination is to be made on a case by case basis upon review of the terms and conditions of the particular arrangement.
2. Draft legislation.

2 June 2003 External T.I. 2003-0021005 - TRAVEL EXPENSES

Unedited CRA Tags
8(10)

Principal Issues: Employer's obligation to complete forms T2200 and TL2

Position: General comments

Reasons: Inadequate information about expenses

30 May 2003 External T.I. 2003-0017405 - INCOME OR CAPITAL ACCOUNT

Unedited CRA Tags
9(1) 18(1)(a)

Principal Issues: Whether gains resulting from the disposition of residences would be taxable on account of income or capital?

Position: Question of fact, general comments provided.

Reasons: General comments provided.

30 May 2003 External T.I. 2003-0006005 F - EQUIVALENT TO SPOUSE

Unedited CRA Tags
118(1)(B)
Summary Under
Tax Topics - Income Tax Act - Section 118 - Subsection 118(1) - Paragraph 118(1)(b) - Subparagarph 118(1)(b)(i)
s. 118(1)(b)(i) test unlikely to be satisfied where one of couple is incarcerated

Principales Questions:
Dans le contexte du sous-alinéa 118(1)b)(i) de la Loi que signifie : " ne vit pas avec son époux ou conjoint de fait ni ne subvient aux besoins de celui-ci, pas plus que son époux ou conjoint de fait ne subvient à ses besoins "?

Position Adoptée:
Commentaires généraux.

30 May 2003 External T.I. 2003-0182145 F - AVANTAGE IMPOSABLE-VOYAGE

Unedited CRA Tags
6(1)a) 9
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
no taxable benefit re free trip for a customer’s employee where employee spends at least 50% of the time on business-related activities

Principales Questions:
Est-ce que le paiement d'un voyage à l'employé du client d'une société ainsi qu'à son conjoint constitue un avantage imposable pour cet employé?

Position Adoptée:
Si l'employeur exige la présence de l'employé au cours d'un voyage effectué aux fins de l'entreprise et que la conduite des affaires est l'objet principal du voyage, le paiement du voyage de l'employé ne constitue pas un avantage. Si tel n'est pas le cas, il y a un avantage imposable qui peut être réduit si l'employé exerce des activités commerciales pour le compte de son employeur au cours du voyage.

27 May 2003 External T.I. 2003-0000845 - ALLOWANCE PAID TO CROWN CORP.

Unedited CRA Tags
6(1)(b)(i)(A)

Principal Issues: Whether amounts paid to board members and the Director of a crown corporation would be tax-free because of clause 6(1)(b)(i)(A)

Position: Clause would not apply. However, other exceptions may be applicable e.g. 6(1)(b)(vii) and (vii.1), 6(6), and 81(3.1).

Reasons: Clause 6(1)(b)(i)(A) only applies when a set allowance is provided for in an Act of Parliament. Consistent with prior opinions.

23 May 2003 External T.I. 2003-0009685 - RRSP IN TRUST FOR ANOTHER PERSON

Unedited CRA Tags
146

Principal Issues: Can RRSPs assets be held in trust for another individual?

Position: No.

Reasons:
Such an arrangement would preclude compliance with the RRSP registration rules.

15 April 2003 External T.I. 2003-0007795 - OPTION BENEFITS REDUCTION IN SHARE VALUE

Unedited CRA Tags
7(1)

Principal Issues:
Calculation of benefits under an employee stock option or stock purchase plan.

Position:
Provided follow-up commentary based on the results of a recent review of the provisions by the Department of Finance.

Reasons:
The Department of Finance views on the matter were made available.

Technical Interpretation - Internal

3 June 2003 Internal T.I. 2003-0019087 F - Calculation of 163(1) Penalty - Capital Gain

Unedited CRA Tags
163(1) 38(a) 40(1)
Summary Under
Tax Topics - Income Tax Act - Section 163 - Subsection 163(1)
penalty computed on taxable capital gain, not capital gain

Principal Issues: Whether the calculation of the penalty under subsection 163(1) of the Act must be based on the amount of unreported capital gain or on the amount of unreported taxable capital gain.

Position: The calculation of the penalty under subsection 163(1) of the Act must be based on the amount of the unreported taxable capital gain.

Reasons: Wording of the Act.

Le 3 juin 2003

30 May 2003 Internal T.I. 2003-0000117 F - ALLOCATION AUTOMOBLE VERSÉE

Unedited CRA Tags
53(2)(c)
Summary Under
Tax Topics - Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(c) - Subparagraph 53(2)(c)(v)
allowance, or reimbursement for non-partnership expense, is treated as a distribution reducing the partner’s ACB
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(a)
fees, and usually "loan" interest, paid to a partner will be treated as draws rather than deductible expenses
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i)
a loan by a partner to the partnership may be treated as a loan rather than a contribution of capital in special circumstances

Principale Question:

1. Quel est le traitement fiscal d'une allocation versée par une société de personnes à un associé pour l'utilisation de son automobile dans le cadre de ses fonctions ?

2. Qu'en serait-il si la société de personnes remboursait certaines dépenses que les associés ont encourues ?

Position Adoptée:

1. Il s'agit d'un prélèvement pour l'associé.

2. Le traitement fiscal du remboursement variera selon qu'il vise des dépenses de la société de personnes ou des dépenses personnelles de l'associé.

26 May 2003 Internal T.I. 2003-0012557 - TUITION CREDIT DENTISTRY EQUIPEMTN FEES

Unedited CRA Tags
118.5

Principal Issues:
Can students enrolled in a university dentistry degree program include fees charged by the university for use of dental equipment and instruments in their calculation of the tuition tax credit?

Position: Yes.

Reasons:
The amount charged by the university, although labelled a "lease" is actually similar to a lab fee. The individual student does not retain the equipment upon completion of the program.

23 May 2003 Internal T.I. 2003-0016537 - TUITION CREDIT AND FOREIGN TAX CREDIT

Unedited CRA Tags
118.5 118.61 126(1)

Principal Issues:
Can a taxpayer claim the foreign tax credit before calculating the tuition tax credit and thus carry forward unused tuition amounts?

Position: Yes, prior to the coming into force of December 20, 2002 Technical Amendment

Reasons:
In calculating "tax payable" for variable "C", deductions under certain sections are carved out. Until the coming into force of the December 20, 2002 Technical Amendment, the foreign tax credit is not carved out and so can be taken before calculating the carry forward.

5 May 2003 Internal T.I. 2003-000323A - CEE-DYKE Construction - Resource Profits

Unedited CRA Tags
66.1(6) 9 1204

Principal Issues:
Whether refund interest resulting from overpayment of tax could be included in the calculations of resource profits and resource allowance for the purposes of sections 1204 and 1210 of the Regulations, respectively?

Position:
No

Reasons:
Based upon the jurisprudence, the expressions "business of production" and "income from production" are used in the narrow sense for purposes of paragraph 1204(1)(b) of the Regulations. In the case at hand, there is a respectable argument that refund interest resulting from overpayment of tax should not be included in "income from production" because it is not directly related to any actual resource production.

5 May 2003 Internal T.I. 2003-000323B - CEE-DYKE Construction - Resource Profit

Unedited CRA Tags
66.1(6) 9 1204

Principal Issues:
Whether dyke construction costs (i.e., a dyke may be built to retain water, tailings or landfills) should always be on account of current expenses or Canadian exploration expenses?

Position:
No

Reasons:
It is always a question of facts as whether certain dyke construction costs should be considered as current expenses, depreciable property costs or pre-production Canadian exploration expenses.

5 May 2003 Internal T.I. 2003-0003237 - CEE-DYKE Construction - Resource Profits

Unedited CRA Tags
66.1(6) 9 1204

Principal Issues:
Whether CCRA should continue to maintain the current administrative position with respect to paragraph (g) of the definition of "Canadian exploration expense" under subsection 66.1(6) of the Act in light of recent jurisprudence? (CCRA has been taking administrative position that the expression "before the coming into production of the new mine" used in this paragraph could be interpreted as if it were "before the coming into production of the new mine in reasonable commercial quantities".)

Position:
Yes

Reasons:
Finance has been informed of our view on the matter and may consider any corresponding amendments to the Act and Regulations if they are necessary. Before such a decision is made by Finance, we are going to maintain this administrative position until further notice.