Income Tax Severed Letters - 2006-11-17

Ruling

2006 Ruling 2006-0196691R3 - 18(9.1): Deductibility of a "Penalty".

Unedited CRA Tags
18(9.1) 212(1)(b)(vii) 85.1(3)

Principal Issues: Whether a payment made by a taxpayer as a penalty because of the repayment of the principal amount of a debt obligation before its maturity is deductible under subsection 18(9.1).

Position: Yes

Reasons: The repayment will be in respect of the principal amount of the debt obligation that was an amount payable for property acquired by the taxpayer and the property or property substituted therefore is used by the taxpayer in the year for the purpose of gaining or producing income therefrom.

2006 Ruling 2006-0201611R3 - First Nation Settlement Trust

Unedited CRA Tags
149(1)(c) 75(2) 104(6)

Principal Issues: 1) Does a particular First Nation qualify as a public body performing a function of government for purposes of paragraph 149(1)(c) of the Act?
2) Is the particular trust subject to the attribution rule in subsection 75(2) of the Act?
3) In the event that income earned on trust income is paid to the First Nation during the year in which it is earned, is that income deductible by the trust pursuant to subsection 104(6) of the Act?

Position: 1) Yes.
2) Yes.
3) Yes.

Reasons: 1) The First Nation has demonstrated that it performs many of the functions necessary to bring it within paragraph 149(1)(c).
2) The Settlor is a capital beneficiary of the trust and the trust property reverts to the Settlor on windup.
3) There is a possibility that the Trustees may pay income earned on trust income in any given year to the First Nation. To the extent that amounts are in fact so paid, subsection 104(24) provides that they will be considered payable for purposes of a deduction by the Trust pursuant to subsection 104(6).

XXXXXXXXXX 2006-020161

XXXXXXXXXX , 2006

Ministerial Correspondence

2 November 2006 Ministerial Correspondence 2006-0204111M4 - principal residence exemption

Unedited CRA Tags
54

Principal Issues: Whether the principal residence exemption would apply to a property where the land was in excess of one-half hectare.

Position: Question of fact. General comments given.

Reasons: Land in excess of one-half hectare may be considered necessary if the taxpayer was required by municipal law to purchase a minimum lot size or if the law imposed a severance or subdivision restriction for residential lots. See IT-120R6.

Technical Interpretation - External

16 November 2006 External T.I. 2006-0204901E5 F - Meaning of Full Voting Rights

Unedited CRA Tags
186(2) 186(4)
Summary Under
Tax Topics - Income Tax Act - Section 186 - Subsection 186(2)
requirement for special meeting of preferred shareholders to approve an adverse amendment to articles does not detract from full voting rights of common shareholders
Words and Phrases
full voting rights under all circumstances

Principal Issues: The issued and outstanding share capital of a corporation consists of common shares and preferred shares. The common shares are voting and the preferred shares are non voting, except for the "Right to Veto" described below. The preferred shares were issued in the context of a typical estate freeze. Whether the common shares of the capital stock of a corporation will be considered as having full voting rights under all circumstances for the purposes of subsection 186(2) and subparagraph 186(4)(b)(i) of the Act where the corporation may not make any amendments that affect the rights, conditions or privileges of the preferred shares without obtaining the consent of a certain number of the holders of the preferred shares (the "Right to Veto").

Position: Only excerpts of the articles of the corporation were submitted. When the part of the articles of incorporation describing the voting rights attached to the common shares are considered in isolation, one could argue that the said common shares do not have full voting rights under all circumstances. However, after examining all of the constating documents of the corporation, it is possible that it may be established that the common shares would effectively have full voting rights under all circumstances, despite the fact that the corporation may not make any amendments that affect the rights, conditions or privileges of the preferred shares without obtaining the consent of a certain number of the holders of the preferred shares. In itself, the fact that the holders of the preferred shares have this type of Right to Veto would not normally result in the common shares being considered not having full voting rights under all circumstances for the purposes of subsection 186(2) and subparagraph 186(4)(b)(i) of the Act. It should be noted that under certain corporate laws in Canada, this type of Right to Veto is granted by law to the shareholders. Subsection 186(2) or subparagraph 186(4)(b)(i) of the Act should not apply differently depending on whether the Right to Veto has been granted legislatively or under the terms of the articles of incorporation.

Reasons: Wording of the Act.

15 November 2006 External T.I. 2004-0083461E5 F - Feb. 2004 Proposals - Paragraph 85(1)(d.11)

Unedited CRA Tags
85(1)(d.11) 88(1)(c.1)
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(d.11)
application date of s. 85(1)(d.11)

Principal Issues: New paragraph 85(1)(d.11) has been added by the Legislative Proposals released in December 2002, February 2004 and July 2005. Pursuant to the application rule set out regarding paragraph 85(1)(d.11), this provision applied in respect of dispositions that occur after December 20, 2002. Whether this application rule referred to the initial transfer of the eligible capital property ("ECP") by the taxpayer in favour of the taxable Canadian corporation under subsection 85(1) or to the subsequent sale of ECP by the said taxable Canadian corporation.

Position: On November 9, 2006, the Minister of Finance tabled a Notice of Ways and Means Motion that contains a new application rule set out with respect to new paragraphs 85(1)(d.11) and (d.12) (see subsection 86(4) of the Notice of Ways and Means Motion tabled on November 9, 2006). This new application rule answers the question raised above.

Reasons: Wording of the November 2006 Notice of Ways and Means Motion.

14 November 2006 External T.I. 2006-0201371E5 F - FERR: Legs à une fiducie exclusive au conjoint

Unedited CRA Tags
146.3
Summary Under
Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(1) - Designated Benefit - Paragraph (a)
amount funded with capital encroachment out of spousal trust equaling RRIF of testator would be eligible for the election

Principales Questions: Dans une Situation Donnée, est-ce que le liquidateur de la succession du conjoint décédé (M. A) et la conjointe survivante (Mme A) pourraient exercer le choix prévu à la définition de l'expression "prestation désignée" au paragraphe 146.3(1) relativement à la somme versée dans le cadre du FERR de M.A au liquidateur de la succession de M. A.

Position Adoptée: Oui.

Raisons: Les montants versés dans le cadre du fonds après le décès de M. A au représentant légal seraient des remboursements de primes au sens du paragraphe 146(1) s'ils avaient été versés à Mme A dans le cadre du fonds et si le fonds était un REER non échu.

10 November 2006 External T.I. 2006-0208831E5 - test wind turbines CRCE

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

Principal Issues: Whether wind turbines located at XXXXXXXXXX wind farm projects will qualify as "test wind turbines" under subsection 1219(3) of the Regulations.

Position: Yes, provided the test wind turbines installed have been and will be used for the testing program described in the Application; and the facts and representations relating to the projects remain as stated.

Reasons: Based upon the wording of the relevant provisions of the Regulations, written opinions obtained from Natural Resources Canada dated October 5, 2006 and the facts of the situation.

10 November 2006 External T.I. 2006-0212171E5 - test wind turbines - CRCE

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

Principal Issues: whether proposed changes to the location of the XXXXXXXXXX test wind turbines described in our letter 2006-017985 would alter our opinion regarding the ability of those turbines to qualify as test wind turbines under Reg. 1219(3).

Position: No.

Reasons: Requirements of Reg. 1219(3) will be met and a favourable opinion confirming that the spacing requirement will continue to be met was provided in an electronic message from NRCan on Oct. 26, 2006.

10 November 2006 External T.I. 2006-0174681E5 F - Salaire versé par un employé à un adjoint

Unedited CRA Tags
8(1)f) 8(1)i)(ii)
Summary Under
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(i) - Subparagraph 8(1)(i)(ii)
position in IT-352R2, para. 1 consistent with Longtin

Principales Questions: Est-ce qu'un employé qui est rémunéré par commissions et qui négocie des contrats pour son employeur peut déduire comme frais d'emploi un salaire qu'il verse à une adjointe qu'il a embauchée pour l'aider dans l'accomplissement des tâches de son emploi même si l'embauche de l'adjointe n'est pas exigée dans son contrat d'emploi.

Position Adoptée: Oui.

Raisons: Il n'est pas nécessaire que le contrat d'emploi exige l'embauche d'une adjointe. Il est suffisant que le contrat d'emploi requiert que l'employé paie le salaire d'une adjointe de sa propre poche. Cette interprétation a été réaffirmée récemment par la CCI dans Longtin c. La Reine, 2006 CCI 335.

9 November 2006 External T.I. 2006-0190481E5 - Deductions from Employment Income

Unedited CRA Tags
8(1) 8(2)

Principal Issues: Can an employee deduct the cost of dog boarding, lawn care, snow removal and home security, which expenses he incurs while travelling for employment purposes?

Position: No

Reasons: These expenses are not listed as expenditures eligible for deduction in section 8 of the Act.

2006-019048
XXXXXXXXXX Renée Shields
(613) 948-5273
November 9, 2006

8 November 2006 External T.I. 2006-0176171E5 F - Revente d'un bien amortissable - alinéa 13(7)e)

Unedited CRA Tags
13(7)e) 13(21) 39(1)
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(e)
no deemed CCA class for s. 13(7)(e) denial
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(b) - Subparagraph 39(1)(b)(i)
capital loss denied on sale of building – proceeds reflected in UCC reduction
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - F
application of disposition expenses under Element F

Principales Questions: (1) Est-ce que l'Agence du revenu du Canada considère que l'écart de 200 000$, entre le prix payé de 4 200 000$ et le coût de 4 000 000$ tel que déterminé par l'article 13 de la Loi de l'impôt sur le revenu, ne fait partie d'aucune catégorie de l'Annexe II du Règlement de l'impôt sur le revenu?
(2) Si tel est le cas, est-ce que l'acquéreur du bien amortissable - qui revend le bien pour un produit se situant entre le prix payé de 4 200 000$ et le coût déterminé par l'article 13 de 4 000 000$ - peut réclamer une perte en capital sur la disposition du bien?
(3) Si une perte en capital ne peut être réclamée, peut-on soustraire du produit de 4 000 000$ les frais de vente de 90 000$?

Position Adoptée: (1) Cet écart ne peut être ajouté à quelconque catégorie de l'Annexe II du Règlement de l'impôt sur le revenu.
(2) Non.
(3) Non.

Raisons: Interprétation de la Loi de l'impôt sur le revenu.

8 November 2006 External T.I. 2006-0189291E5 - Taxable Benefit - Fitness Membership

Unedited CRA Tags
6(1)(a)

Principal Issues: How to calculate a taxable benefit where the employer pays an annual lump sum to a fitness facility and employees who wish to participate in a fitness program pay an annual membership to the facility. Not all employees participate in the program and the amount they pay is less than the fair market value of a fitness membership at the facility that is available to members of the general public.

Position: The amount of the benefit for each employee who participates in the program is equal the amount paid by the employer divided by the number of employees who participate.

Reasons: Pursuant to paragraph 6(1)(a) of the Act each employee who participates in the fitness program has received a taxable benefit. Generally, the amount of a taxable benefit is based on fair market value. However, in a situation such as this it is sufficient to allocate the employer's cost equally among employees who participate and benefit.

8 November 2006 External T.I. 2006-0208601E5 F - Crédit d'impôt pour transport en commun

Unedited CRA Tags
118.02
Summary Under
Tax Topics - Income Tax Act - Section 118.02 - Subsection 118.02(1) - Public Commuter Transit Services
definition extends to ferrying of motorists

Principales Questions: (1) Est-ce que la prestation de service de traversier pour les automobilistes est considérée comme étant un service de transport en commun?
(2) Un laissez-passer mensuel auprès d'un service de traversier local pour le transport des automobilistes serait-il admissible au crédit d'impôt proposé?

Position Adoptée: (1) Oui, puisque les services offerts par un traversier consistent à transporter des particuliers avec ou sans leur automobile.
(2) Seule la portion qui est attribuable à l'utilisation de services de transport en commun par le particulier donnerait droit au crédit d'impôt.

Raisons: Libellé du paragraphe 118.02 proposé de la Loi de l'impôt sur le revenu. Notre conclusion fut corroborée par la Direction de la politique législative.

7 November 2006 External T.I. 2006-0201261E5 F - REER: Legs à une fiducie exclusive au conjoint

Unedited CRA Tags
146(8.1)
Summary Under
Tax Topics - Income Tax Act - Section 146 - Subsection 146(8.1)
surviving spouse would be "beneficially interested" in the estate of a deceased RRSP annuitant by virtue of being a beneficiary of a testamentary trust

Principales Questions: Dans une Situation Donnée, est-ce que le liquidateur de la succession du conjoint décédé (M. A) et la conjointe survivante (Mme A) pourraient exercer le choix prévu au paragraphe 146(8.1) tel que modifié par les Propositions législatives concernant l'impôt sur le revenu du 18 juillet 2005 (" les Propositions ") relativement à la somme versée dans le cadre du REER de M.A au liquidateur de la succession de M. A.

Position Adoptée: Oui.

Raisons: Le paragraphe 146(8.1) tel que modifié par les Propositions s'appliquerait à un particulier qui a un " droit de bénéficiaire ", au sens du paragraphe 248(25), dans la succession d'un rentier de REER décédé tel que c'est le cas dans la Situation Donnée, Mme A détenant une participation dans une fiducie testamentaire qui est bénéficiaire de la succession.

6 November 2006 External T.I. 2006-0201091E5 - Capital Cost Allowance Classes

Unedited CRA Tags
schedule II Regulations

Principal Issues: What is the proper CCA class for water and air ozone treatment equipment?

Position: Class 1 for water ozone equipment and class 8 for air ozone equipment.

Reasons: Water ozone equipment is permanently attached to a building while the air equipment is portable.

2 November 2006 External T.I. 2005-0160601E5 - Social security benefit - Hungary

Unedited CRA Tags
56(1)(a) 110(1)(f)

Principal Issues: Whether an amount of social security/state pension benefits received from the government of Hungary, by a Canadian resident, is taxable in Canada?

Position: It depends on whether the amount is paid pursuant to the social security legislation of Hungary and on whether the amount is subject to tax in Hungary.

Reasons: Article 18 of the Canada-Hungary tax convention.

30 October 2006 External T.I. 2006-0193141E5 - Tax Withholdings on Directors' Fees

Unedited CRA Tags
153(1)(a) 248(1) def of "office" 6(1)(c)

Principal Issues: Can directors' fees be included in the income of a personal service corporation without withholdings under 153(1)(a)? Can directors' fees be included in the income of a non-resident partnership or a non-resident corporation without withholdings under 153(1)(a), but subject to 15% withholding by virtue of 153(1)(g) and Reg. 105?

Position: No

Reasons: Director's fees are taxable to a director under 6(1)(c) and are subject to withholding under 153(1)(a) except as administratively contemplated in IT-377R.

23 October 2006 External T.I. 2005-0132391E5 - Transfer of Family Farm Property.

Unedited CRA Tags
85(1) 110.6(2) 40(2)(b)

Principal Issues: Whether the proposed transactions will 1) trigger a capital gain in respect of the farm property, 2) allow the taxpayer to claim a capital gain deduction for qualified farm property, and 3) allow the taxpayer to claim a capital gains exemption for a principal residence.

Position: 1) Yes. 2) Maybe. 3) Yes.

Reasons: 1) Rules of 85(1). 2) The property would be qualified farm property based on the rules for periods prior to May 1,2006, however, after that date there are proposed change to the definition of qualified farm property. 3) The farm house can qualify as a principal residence, however, it can not be legally severed from the farm property so there can be only one agreed amount on a 85(1) which would have to be allocated on a reasonable basis between the farm land and the principal residence.

23 October 2006 External T.I. 2005-0155851E5 - Cdn. Agric. Income Stab. Program

Unedited CRA Tags
Reg 234(1) Reg 234(2)

Principal Issues: 1. Should amounts paid by the Alberta Agriculture Financial Services Corporation (AFSC) in administering the Canadian Agricultural Income Stabilization (CAIS) Program be reported on an AGR-1 slip? 2. Should these amounts be included in income for the year they were received?

Position: Yes to both questions.

Reasons: Pursuant to subsection 234(1) of the Income Tax Regulations (the "Regulations"), every government, municipality or municipal or other public body or producer organization or association that makes a payment of an amount that is a "farm support payment" to a person or partnership is required to make an information return in prescribed form in respect of the amount (AGR-1). An amount received under the CAIS Program by a person carrying on a farming business would generally be required to be included in computing that person's income from farming pursuant to section 9, or section 28 if applicable, and for greater clarity under the provisions of paragraph 12(1)(x) of the Act.

Conference

7 October 2005 Roundtable, 2005-0140891C6 F - Disposition d'une immobilisation

Unedited CRA Tags
14(5) 14(1) 14(3) 14(1)b)
Summary Under
Tax Topics - Income Tax Act - Section 14 - Subsection 14(1) - Paragraph 14(1)(b)
illustration of application of formula where the vendor of goodwill previously acquired it in a NAL transfer at a gain to the transferor

Principales Questions: Quel est le montant à inclure dans le revenu d'une société qui dispose d'une immobilisation admissible à une société sans lien de dépendance, alors que cette immobilisation admissible fut précédemment acquise d'une société ayant un lien de dépendance avec le cédant.

Position Adoptée: Selon les faits présentés, 250 000$

Raisons: Selon les calculs aux paragraphes 14(5), 14(3) et 14(1) de la Loi de l'impôt sur le revenu.

7 October 2005 Roundtable, 2005-0141021C6 F - Actions admissibles de petite entreprise

Unedited CRA Tags
248(1) 110.6
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Small Business Corporation
if Opco and Realtyco are held equally by two unrelated individuals, Realtyco is not an SBC if it holds more than 50% of its assets as debt of Opco

Principales Questions: Est-ce que les actions de ImmeubleCo. constituent des actions admissibles de petite entreprise tel que défini à l'article 110.6 de la Loi de l'impôt sur le revenu?

Position Adoptée: Non. La créance dont Opco est débitrice ne constituerait pas pour ImmeubleCo une dette d'une société exploitant une petite entreprise qui est rattachée à ImmeubleCo. ImmeubleCo ne serait pas une SEPE puisque seulement 44% environ de la juste valeur marchande de son actif serait attribuable à des éléments d'actifs visés à la définition de SEPE.

Raisons: Loi de l'impôt sur le revenu.

7 October 2005 Roundtable, 2005-0141151C6 F - Lotissement de biens

Unedited CRA Tags
248(20) 248(21)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(21)
s. 248(21) can apply to partitioning a building into separately-owned units

Principales Questions: Quels sont les critères utilisés pour déterminer si le paragraphe 248(21) de la Loi de l'impôt sur le revenu s'applique au partage d'un bien entre plusieurs personnes, lorsque le partage inclus également des bâtiments.

Position Adoptée: Le paragraphe 248(21) s'applique si chacune des personnes a, par suite du partage d'un bien, un nouveau droit dont la juste valeur marchande immédiatement après le partage, exprimée en pourcentage de la juste valeur marchande de tous les nouveaux droits sur le bien immédiatement après le partage, est égale à la juste valeur marchande du droit indivis de cette personne immédiatement avant le partage.

Technical Interpretation - Internal

8 November 2006 Internal T.I. 2006-0203301I7 - Subsection 13(21.1) and demolitions

Unedited CRA Tags
13(21.1) 68

Principal Issues: Can paragraph 13(21.1)(a) apply to a sale of a building and land if the vendor allocates the sale price only to the land because the purchaser demolishes the building shortly after the acquisition?

Position: yes

Reasons: In the situation contemplated above, subsection 13(21.1) can apply if the proceeds of disposition of the building determined, without reference to subsections 13(21.1) and (21.2) but taking into account section 68, are less than the lesser of the cost amount and the capital cost of the building immediately before the disposition.

24 October 2006 Internal T.I. 2006-0203901I7 F - Avantage automobile

Unedited CRA Tags
6(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
bus stop near the employee’s home does not qualify as a pick-up point regarding the exception for employer-assisted commuting

Principales Questions: Est-ce que les frais de transport payés par l'employeur pour le transport de ses employés de l'arrêt d'autobus le plus près du domicile du chauffeur au lieu de travail après les heures où le transport en commun est disponible, est un avantage imposable pour les employés?

Position Adoptée: La distance entre l'arrêt d'autobus le plus près du domicile du chauffeur selon un horaire prédéterminé est une dépense personnelle de l'employé et le transport payé par l'employeur doit être inclus au revenu de l'employé.

Raisons: Position exprimée au paragraphe 32 du bulletin d'interprétation IT-470R

12 September 2006 Internal T.I. 2005-0147801I7 F - Déduction pour frais judiciaires d'un employé

Unedited CRA Tags
8(1)b)
Summary Under
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(b)
legal fees incurred in defending against allegations of harassment were non-deductible

Principales Questions: Une employée qui encourt des frais judiciaires pour assurer sa défense dans le cadre d'une action en harcèlement peut-elle déduire ces frais du calcul de son revenu d'emploi aux termes de l'alinéa 8(1)b) de la Loi de l'impôt sur le revenu?

Position Adoptée: Non.

Raisons: Les frais n'ont pas été engagés par l'employée pour recouvrer un montant de salaire qui lui était dû ni pour établir son droit à celui-ci.

16 August 2006 Internal T.I. 2006-0199251I7 - Indian residential school payments

Unedited CRA Tags
81(1)(a)

Principal Issues: Are former students of Indian residential Schools taxable on payments received as:
1) common experience payment pursuant to proposed Settlement Agreement
2) payment pursuant to the Independent Assessment Process under the proposed Settlement Agreement
3) damages received pursuant to private litigation

Position: No

Reasons: Payments under (1) and (2) have been considered and determined to be non-taxable. Damages received pursuant to private litigation would be treated as outlined in IT-365R2