Income Tax Severed Letters - 2004-11-19

Administrative Letter

10 November 2004 Administrative Letter 2004-0080712E5 F - Disposition d'un intérêt - police d'assurance-vie

Unedited CRA Tags
148(9)

Principales Questions: Des modifications à une police d'assurance-vie entraînent-elles une disposition d'un intérêt dans la police?

Position Adoptée: C'est une question de fait et de droit

Raisons: S'il y a un nouveau contrat en droit civil, il y a une disposition au sens du paragraphe 148(9) à moins d'une disposition contraire expresse dans la Loi de l'impôt sur le revenu.

Ruling

2004 Ruling 2004-0086191R3 - Reasonableness Shareholder Manager Remuneration

Unedited CRA Tags
67 18(1)(a) 5(1)

Principal Issues: The deductibility of shareholder/manger remuneration that is paid out of income triggered from the proceeds of a sale of business assets.

Position: Remuneration is deductible.

Reasons: Amount is reasonable and incurred for the purpose of earning business income.

2004 Ruling 2004-0091211R3 - Health Care Expense Account

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether a health care expense account offered to employees who are already covered by a flex benefits plan, would qualify as a private health services plan; and, whether the allocation of credits, which is linked to a bonus the employees may be entitled to receive, would result in employment income to the employees

Position: The plan is a private health services plan, and the allocation will not result in taxable employment income for the employees.

Reasons: Consistent with IT-529 and previous rulings on the issue.

2004 Ruling 2004-0092731R3 - Withholding Tax exemption on-loan to a lp

Unedited CRA Tags
212(1)(b)(vii)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Subparagraph 212(1)(b)(vii)

Principal Issues: Can a corporation on-loan to a limited partnership?

Position: Yes

Reasons: Corporate structure in place provides better security for the lenders

Technical Interpretation - External

16 November 2004 External T.I. 2004-0088031E5 - Principal Residence-"one-plus" rule

Unedited CRA Tags
54

Principal Issues: If a taxpayer disposes of two properties in the same taxation year and both properties are designated principal residences (for different years) for purposes of the Act, can both properties take advantage of the "one-plus" rule in paragraph 40(2)(b) of the Act?

Position: Yes.

Reasons: Paragraph 40(2)(b) applies on a property-by-property basis. Where a taxpayer disposes of both a city home and a cottage in the same taxation year, both properties may take advantage of the "one-plus" benefit provided all other requirements of paragraph 40(2)(b) and the definition of "principal residence" in subsection 54(1) of the Act have been met.

16 November 2004 External T.I. 2004-0101221E5 - Employee Stock Purchase Plan

Unedited CRA Tags
110(1)(d)

Principal Issues: Whether the deduction available under paragraph 110(1)(d) of the Act applies where the Employee Stock Option Plan provides for the share to be acquired for an amount equal to its fair market value less a specific discount?

Position: No.

Reasons: The deduction under division 110(1)(d)(ii)(A) of the Act will only be available to a taxpayer where the actual exercise price of the share is equal to or greater than the fair market value for the share at the time the option was granted.

16 November 2004 External T.I. 2004-0081941E5 - SIB-leasing of portable trailers&equipment

Unedited CRA Tags
125(7)
Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Active Business Carried On by a Corporation

Principal Issues: Whether the leasing of portable trailers and equipment to XXXXXXXXXX operators on a temporary basis would constitute carrying on a business that is a "specified investment business" for purposes of s.125 of the Act.

Position: No.

Reasons: These trailers and equipment are not real property. The business would be excluded from the definition of SIB by virtue of being a business of leasing property other than real property.

16 November 2004 External T.I. 2004-0064821E5 F - 88(1) Bump

Unedited CRA Tags
88(1) 256(6.1)
Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(c.3) - Subparagraph 88(1)(c.3)(ii)
acquisition by Buyco of Target shares before its acquisition of control accommodated through restrictive interpretation of s. 88(1)(c.3)(ii)
Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(c) - Subparagraph 88(1)(c)(vi) - Clause 88(1)(c)(vi)(B) - Subclause 88(1)(c)(vi)(B)(I)
where Buyco acquired Target shares before acquiring control of Target, Vendor would be a person described in s. 88(1)(c)(vi)(B)(I)
Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(c.3) - Subparagraph 88(1)(c.3)(i)
example of situation where the acquisition of shares of parent by vendor would not be within s. 88(1)(c.3)(i), but would fall within s. 88(1)(c.3)(ii)

Principal Issues: Whether 88(1)(c.3)(ii) would apply in the situation described in the letter?

Position: No.

Reasons: Wording of 88(1)(c.3)(ii) and purpose of the provision.

15 November 2004 External T.I. 2004-0075401E5 - Sale of Common Property-Principal Residence

Unedited CRA Tags
54 40(2)(b)

Principal Issues: Would the proceeds from the sale of a vacant lot held in a bare land strata be treated as a disposition of part of the respective principal residences for each of the strata owners?

Position: Question of fact and of law. Does not appear to meet the definition of principal residence.

Reasons: Insufficient information to conclude if vacant lot was required to be acquired by home owners in the strata and whether this would be sufficient to qualify it as part of their principal residences.

15 November 2004 External T.I. 2004-0101621E5 - Test Wind Turbine - CRCE

Unedited CRA Tags
Reg 1219(1) Reg 1219(3)

Principal Issues: Whether certain revisions to the transactions detailed in our file 2004-005784 would alter our opinion regarding the ability of each of three wind turbines to qualify as a "test wind turbine" for purposes of CRCE under proposed amendments to section 1219 of the Regulations.

Position: No. Provided the amendments come into force as proposed and the taxpayer proceeds with the development of the wind farm projects under the revised plan, each of the wind turbines would so qualify.

Reasons: Based upon the wording of the proposed amendments, written opinions received from Natural Resources Canada and the facts of the situation.

10 November 2004 External T.I. 2004-0077831E5 F - Biens à usage personnel

Unedited CRA Tags
39 46(1) 46(3) 54
Summary Under
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Collectibles
collection of items of personal interest accumulated over 35 years, with some trading, and then auctioned off, likely were capital property
Summary Under
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) - Subparagraph 45(1)(a)(i)
offering personal collection on an auction site did not constitute a change of use
Summary Under
Tax Topics - Income Tax Act - Section 46 - Subsection 46(3)
selling off personal collection one-by-one on auction site did not engage s. 46(3)

Principales Questions: 1. Est-ce que le profit réalisé lors de la disposition d'objets de collection est un gain en capital ou un revenu d'entreprise?
2. Est-ce que le paragraphe 46(1) de la Loi s'applique lors de la disposition?
3. Est-ce que le paragraphe 46(3) de la Loi s'applique à la présente situation?

Position Adoptée: 1. Sous réserve d'un examen de tous les faits pertinents, le profit pourrait être imposé à titre de gain en capital.
2. Le paragraphe 46(1) s'applique parce que les objets de la collection sont des biens à usage personnel.
3. Il n'y a pas assez de renseignements pour prendre position. Cependant, si chacun des objets est vendu à un acheteur différent, le paragraphe 46(3) ne s'applique pas.

Raisons: 1. Lors de l'acquisition des objets, il ne semblait pas avoir l'intention de les vendre mais de les conserver pour l'agrément personnel. La durée de détention est longue. Le contribuable ne semble pas se livrer habituellement à des activités qui lui rapportent un profit en rapport avec la collection. Il ne s'agit pas non plus d'un projet comportant un risque ou une affaire de caractère commercial.
2. Le contribuable détient les biens pour son agrément personnel ce qui répond à la définition de biens à usage personnel à l'article 54 de la Loi.
3. Libellé du paragraphe 46(3) de la Loi. De plus, nous ne pouvons déterminer si des éléments de la collection ou certains d'entre eux sont des biens qui se rattachent les uns aux autres, qui sont reliés entre eux.

10 November 2004 External T.I. 2004-0096611E5 - photovoltaic system

Unedited CRA Tags
Class 43.1

Principal Issues: tax treatment of photovoltaic system used in a business

Position: Outlined requirements of Class 43.1 and Reg. 1219 (CRCE)

Reasons: as per legislation

10 November 2004 External T.I. 2004-0092561E5 F - 85(1), 248(1) "Disposition"

Unedited CRA Tags
85(1) 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1)
no disposition on common-for-common exchange
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
no disposition to the extent that there is a dirty s. 95 exchange of old common shares for identical new common shares

Principal Issues: In the two given fact situations:
1) Whether the "exchange" of common shares of the capital stock of a corporation for preferred shares and common shares of the capital stock of the same corporation would constitute a disposition of all the common shares for the purposes of subsection 85(1) of the Act.
2) Whether the "exchange" of preferred shares of the capital stock of a corporation for shares of a different class of preferred shares having the same rights except the rate of dividend entitlement would constitute a disposition for the purposes of subsection 85(1) of the Act.

Position: 1) No.
2) Yes.

Reasons: Wording of the Act and current positions.

10 November 2004 External T.I. 2004-0082191E5 - Requirement to issue T2200

Unedited CRA Tags
8(10) 248(1)

Principal Issues: Is a taxpayer obligated to complete T2200's for a particular individual?

Position: Question of fact

Reasons: Form T2200 must be signed by an employer in order for an employee to claim certain deductions. "Employer" is defined in subsection 248(1) as, "in relation to an officer, means the person from whom the officer receives the officer's remuneration". Insufficient facts provided to determine whether the individual is an officer or employee and whether the requirements of paragraph 8(1)(h) or (h.1) have been met.

3 November 2004 External T.I. 2004-0075051E5 - Principal residence exemption-ss 40(4)

Unedited CRA Tags
54 40(2)(b) 40(4) 70(6)

Principal Issues: Calculation of principal residence exemption where subsection 40(4) applies.

Position: In general terms, the effect of subsection 40(4) of the Act is to make it possible for the individual/transferee to claim the principal residence exemption under paragraph 40(2)(b) of the Act for taxation years when the property would have been the transferor's principal residence. For the property to have been the spouse/transferor's principal residence, the spouse/transferor must have been eligible to so designate it, i.e., the property must have otherwise met the definition of a principal residence of the spouse/transferor for the years in question.

Reasons: Review of the law, previous position in particular E950769

3 November 2004 External T.I. 2004-0085701E5 - Disposal for no proceeds

Unedited CRA Tags
69(1)(b) 80(1)

Principal Issues: Gifting of promissory note to son for no proceeds - consequences

Position: 69(1)(b) issue

Reasons: Scheme of the Act

1 November 2004 External T.I. 2004-0083561E5 - Bankruptcy-Ontario Tax Reduction

Unedited CRA Tags
7 OITA

Principal Issues: Whether a bankrupt individual is entitled to claim an Ontario Tax Reduction in the calendar year of bankruptcy.

Position: Yes, but only on the "post-bankruptcy return".

Reasons: Ss.7(4) of the OITA provides that the OTR cannot be claimed in respect of a taxation year that does not include the 31st day of December. Ss. 7(6) of the OITA provides that a claim for an OTR cannot be made in respect of a tax return filed on behalf of a bankrupt individual by a trustee in bankruptcy pursuant to par. 128(2)(e) of the Federal Act.

27 October 2004 External T.I. 2004-0080901E5 F - Cotisation professionnelle-frais de traduction

Unedited CRA Tags
8(1)i) 118.5(3) 118.5(1)
Summary Under
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(i) - Subparagraph 8(1)(i)(i)
costs of translating documents re the taxpayer’s foreign professional training did not qualify

Principales Questions: Dans le cadre de sa charge et de son emploi, un contribuable a dû faire traduire des documents concernant son programme d'étude et ses diplômes afin de voir son titre reconnu par un ordre professionnel.
Peut-il déduire à titre de dépenses d'emploi, les frais de traduction payés?
Si ce n'est pas une dépense d'emploi, peut-il les déduire à tout autre titre, par exemple à titre de frais de scolarité?.

Position Adoptée: 1. Non. 2. Non.

Raisons:
Nous sommes d'avis que les frais encourus par un contribuable pour faire traduire les documents concernant son programme d'étude et ses diplômes, dans le but de se qualifier auprès d'une association professionnelle, ne sont pas visés par le sous-alinéa 8(1)i)(i) de la Loi ou par toute autre disposition prévue à l'article 8 de la Loi.
Selon les informations soumises, rien ne nous permettrait de conclure que les frais de traduction entreraient dans le cadre des frais accessoires visés par le paragraphe 118.5(3) de la Loi, c'est-à-dire auraient été payés à un établissement (université, collège ou autre ) au titre de l'inscription du contribuable à un programme de niveau postsecondaire.

Technical Interpretation - Internal

16 November 2004 Internal T.I. 2004-0097241I7 - Severance Payment and RPP pensionable earnings

Unedited CRA Tags
147.1

Principal Issues: Whether a severance payment qualifies as "compensation" for the purposes of the registered pension plan (RPP) rules when received as a salary continuance or as a lump sum amount.

Position: Payments received as salary continuance may qualify subject to the terms of the RPP. However, a lump sum amount received as a retiring allowance will not qualifiy as "compensation" for the purposes of the RPP rules.

Reasons: The definition of "compensation" in subsection 147.1(1) of the Act, provides that an amount received in respect of an individual's office or employment and that is required to be included in income under sections 5 or 6 of the Act will meet the definition. Where the terms of a separation agreement provide for the severance amount to be paid in the form of salary continuance, the amount will be included in employment income under either subsection 5(1) of the Act alone or together with paragraph 6(3)(b). Accordingly, the amount will qualify as compensation. However, the payment of a retiring allowance is included in income under subsection 56(1) of the Act and would not meet the definition of compensation for the purposes of the RPP rules.

10 November 2004 Internal T.I. 2004-0098211I7 - Section 67.1 of the Act

Unedited CRA Tags
67.1 9 18(1)(a)

Principal Issues: Does section 67.1 apply to meal and entertainment expenses incurred for legitimate business purposes to the extent that the expenses are not lavish or extravagant?

Position: Yes.

Reasons: The wording of the provision is clear. Unless one of the exceptions contained in subsection 67.1(2) applies, subsection 67.1(1) limits the deduction to 50% of the amount otherwise deductible.
November 10, 2004

8 November 2004 Internal T.I. 2004-0093441I7 - DPSP - Contributions Based on US Parent's Profits

Unedited CRA Tags
147(1) 147(5.1) 251(2)(b)(i) 251(1)
Summary Under
Tax Topics - Income Tax Act - Section 147 - Subsection 147(1) - Deferred Profit Sharing Plan

Principal Issues: Where an employer's contributions are to be computed with reference to its profits and that of its U.S. parent, and the employer has no profits, can an employer make a contribution to a DPSP based on its U.S. parent's profits?

Position: Yes, provided the corporations are not dealing at arm's length and the contributions are made in accordance with the terms of the plan.

Reasons: An employer whose contributions are determined by reference to profits can base such contributions on its own profits for the year or on the combined profits for the year of it and corporations with which it does not deal at arm's length. In this scenario, the U.S. parent controls the employer and therefore does not deal at arm's length with the employer pursuant to subsection 251(1) and subparagraph 251(2)(b)(i) of the Act. In a situation involving combined profits where the employer's own profits are nil, an employer could end up basing its contributions solely on the profits of the parent.