Income Tax Severed Letters - 2004-05-28

Ruling

2004 Ruling 2004-0064761R3 - US LLC taxed as S Corp; liable to tax

Unedited CRA Tags
Article IV

Principal Issues: Whether US LLC that elected to be taxed as an S Corporation after it elected to be taxable as a corporation under the Internal Revenue Code is entitled to claim benefits under the Canada-United States Income Tax Convention?

Position: Yes

Reasons: US LLC as described is a person that under the laws of the US is liable to tax by reason of any other criterion similar to the place of incorporation.

XXXXXXXXXX 2004-006476

XXXXXXXXXX , 2004

2004 Ruling 2004-0064461R3 - supplemental Ruling

Unedited CRA Tags
20(1)(c) 88(1)(d)

Principal Issues: Minor changes to Ruling 2003-004728

Position: Amended

Reasons: minor changes

Technical Interpretation - External

26 May 2004 External T.I. 2004-0066911E5 - Automobile Standby Charge

Unedited CRA Tags
6(2) 6(2.1)

Principal Issues: Whether the standby charge may be calculated using the average cost of all automobiles held by the employer on one particular day in the year as opposed to using the average cost of all automobiles acquired by the employer throughout the year.

Position: No.

Reasons: In computing the standby charge using subsection 6(2.1) for employees who sell or lease automobiles, the employer cannot use the average cost of automobiles that it owned on any given day throughout the year but must use the average cost of all such automobiles that it owned throughout the year.

25 May 2004 External T.I. 2003-0051291E5 F - Formation et croisière

Unedited CRA Tags
18(1)a) 18(1)h) 67 20(10)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Know-How and Training
deducible cost of cruise that included seminars would not exceed the cost of a comparable domestic course
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(10)
costs of cruise, if not viewed as training, would be non-deductible as they were incurred outside Canada

Principales Questions: Est-ce que les frais encourus par les membres de l'Association à l'égard de congrès, de colloques et de séminaires tenus au cours d'une croisière, sont déductibles de leur revenu aux fins de l'impôt ?

Position Adoptée: Si les frais constituent des frais de formation qui sont des dépenses courantes, ces frais pourraient être déductibles jusqu'à concurrence du montant que cela aurait normalement coûté si la formation était dispensée dans la région géographique du contribuable. Toutefois, si l'élément personnel est prédominant et que la croisière correspond plus à des vacances, seuls les frais de cours comme tels seraient déductibles.
Si les frais sont encourus dans le cadre d'un congrès, rien ne serait déductible.

Raisons: Position émise au paragraphe 5 du IT-357R2.

20 May 2004 External T.I. 2004-0064551E5 - RESP - Attribution rules

Unedited CRA Tags
74.1(2) 74.3(1) 146.1(2)(g.2)

Principal Issues:
1. Can a grandparent make a contribution to his grandchild's RESP?
2. Do the "attribution rules" in subsection 74.1(2) of the Act apply in the situation described in 1?

Position:
1. Yes, if made on behalf of the subscriber.
2. No.

Reasons:
1. A contribution may be made to an RESP by a subscriber or on behalf of a subscriber. However, it is our understanding that, in accordance with the legislation administered by HRDC, payments on behalf of a subscriber are not eligible for the Canada Education Savings Grant.
2. Wording of 74.3(1) of the Act.

20 May 2004 External T.I. 2003-0042681E5 - assignment of insurance to EFA under 148.1

Unedited CRA Tags
148.1

Principal Issues: Does the assignment of an insurance policy or annuity to a funeral home qualify as eligible funeral arrangement?

Position: Question of Fact.

Reasons: If the assignment does not entitle the funeral home to the funds from the policy or annuity following the death, because the policy holder retains the right to name the beneficiary, then it is unclear how the arrangement can be said to be for the purpose of funding the funeral and would not be an eligible funeral arrangement. If the funeral home is entitled to the funds upon the death of the individual, the arrangement could be an eligible funeral arrangement.

XXXXXXXXXX 2003-004268
Annemarie Humenuk
May 20, 2004

17 May 2004 External T.I. 2004-0071411E5 - Medical expenses- special food

Unedited CRA Tags
118.2(2)(n)

Principal Issues: Do the cost of meal replacement liquids qualify as medical expenses?

Position: Question of fact

Reasons: Not specifically covered by 118.2(2)(n), but will qualify if prescribed by medical professional and recorded by pharmacist.

14 May 2004 External T.I. 2004-0062801E5 - limited partnership losses- tiered partnership

Unedited CRA Tags
96(2.1) 111(1)(e)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(e)
denial where GP atop an LP

Principal Issues: Use of limited partnership losses in a tiered partnership situation

Position: Allocation of losses of bottom partnership unavailable to members of top partnership

Reasons: ss.102(2) deems the top partnership to be a taxpayer only for purposes of division j and therefore any loss of bottom tier could not be a carry-forward loss of top tier

Conference

4 May 2004 CALU Roundtable Q. 1, 2004-0065391C6 - Foreign Currency Life Insurance Policies

Unedited CRA Tags
307 Reg 307

Principal Issues: How are the exempt test policy rules in section 307 of the Income Tax Regulations to be applied to a life insurance policy issued in a currency other than the Canadian dollar?

Position: The exempt test policy rules are to be applied using Canadian dollar amounts. The amounts used in the computations should be converted to Canadian dollars using the currency exchange rate at the relevant time, such that any foreign currency fluctuations would be factored into the determination of whether a life insurance policy is an exempt policy at any particular time.

Reasons: Pursuant to the FCA decision in Gaynor v. The Queen (91 DTC 5288), in determining the value of amounts denominated in a foreign currency, the amounts "must be value in Canadian currency which is the only monetary standard of value known to Canadian law".

4 May 2004 CALU Roundtable Q. 1, 2004-0065441C6 - Transfer of Multiple Life Policy

Unedited CRA Tags
148(8)

Principal Issues: Will subsection 148(8) of the Act apply to the transfer of a life insurance policy under which the life of more than one child is insured?

Position: No.

Reasons: Subsection 148(8) is an exception to the general rule apply to non-arm's length transfers of life insurance policies which is found in subsection 148(7). In our view it would be "contrary to the intention" of subsection 148(8) to apply subsection 33(2) of the Interpretation Act, so as to expand the exception in subsection 148(8) to multiple life policies. This is also consistent with the views we provided in our response to Question #1 at the 2000 CALU Roundtable, in respect of the application of subsection 70(5.3) of the
Act to multiple life policies.

4 May 2004 CALU Roundtable Q. 2, 2004-0065401C6 - Foreign-Issued Annuity Contracts

Unedited CRA Tags
12.2 94.2 Reg 304

Principal Issues: If a taxpayer can establish that a foreign-issued annuity contract is a prescribed annuity contract, and hence that the amount required by section 12.2 to be included in the taxpayer's income in respect of the contract is nil, does the Agency agree that the contract is excluded from the mark-to-market rules?

Position: We do not agree.

Reasons: There is no basis to argue that an amount equal to nil is included in the taxpayer's income under section 12.2 of the Act since this section does not apply with respect to prescribed annuity contracts.

4 May 2004 CALU Roundtable Q. 7, 2004-0065451C6 - Deemed Gift of Life Insurance Proceeds

Unedited CRA Tags
118.1(5.1)

Principal Issues: 2004 Conference for Advanced Life Underwriting, Question 7.

Position: Q&A attached.

Reasons: N/A

4 May 2004 CALU Roundtable Q. 8, 2004-0065461C6 - Corporate-owned life insurance

Unedited CRA Tags
15(1) 245(2)

Principal Issues: Whether the views expressed in technical interpretation E9824645 still reflect the CRA's position with respect to the tax implications of a corporate-owned life insurance policy where the parent is the beneficiary.

Position: It remains the CRA's position that generally subsection 15(1) will not apply with respect to the situation described in interpretation E9824645. In terms of the GAAR, it is our current practice to comment on the application of the GAAR only after reviewing all the facts and circumstances of a transaction in connection with an advance ruling request.

Reasons: See interpretation E9824645.

4 May 2004 CALU Roundtable Q. 9, 2004-0065471C6 - RRSP rollover: minor or infirm child

Unedited CRA Tags
146(1) 146(8.1) 60(l)

Principal Issues: Can the legal representative of the deceased annuitant purchase a qualifying annuity for a financially dependant child?

Position: Yes.

Reasons: As long as the child is the sole beneficiary of the annuity held by a trust. A transfer of the amount as a refund of premiums may be made to an RRSP under which the child or the trust is the annuitant, where it is made by or on behalf of the child.

Technical Interpretation - Internal

20 May 2004 Internal T.I. 2004-0070041I7 - Fraudulent RRSP Withdrawals

Unedited CRA Tags
146(8) 56(1)(h)

Principal Issues: Are fraudulent withdrawals from an RRSP considered "received" by the annuitant and included in his income?

Position: In this particular case, the annuitant had not "received" the amounts.

Reasons: Interpretation of the word "received" in Field 2001 DTC 236(TCC)

25 September 2003 Internal T.I. 2003-0022357 - FORGIVENESS OF DEBT SHARES

Unedited CRA Tags
80(2)(g) 245(2)

Principal Issues: Whether 80(2)(g) applies

Position: Yes

Reasons:
No evidence supports a position that the Canco shares issued to Parentco were paid for other than by a forgiveness of debt owed to Parentco by Canco.
September 25, 2003