Income Tax Severed Letters - 2006-12-08

Ruling

2006 Ruling 2006-0192521R3 - Loss Utilization

Unedited CRA Tags
84(3) 112 187.2 191.1

Principal Issues: Loss consolidation within a corporate group

Position: The loss consolidation is acceptable

Reasons: The ruling is consistent with our positions in previous rulings and with Department of Finance policy.

2006 Ruling 2006-0201601R3 - Whether a bonus is reasonable in the circumstances

Unedited CRA Tags
67(1)

Principal Issues: Whether a bonus to be paid out of proceeds of disposition of business property, including goodwill, will be reasonable in the circumstances.

Position: Yes, based on the facts provided.

Reasons: The issue of the reasonableness of the amount of a bonus payment is a question of fact. In this ruling, all of the relevant facts are known.

2006 Ruling 2006-0210741R3 - Paid-up Capital Reduction - Public Corporation

Unedited CRA Tags
84(2) 84(4.1) 53(2) 40(3)

Principal Issues: Whether subsection 84(2) applies to the proposed distribution of shares of a subsidiary corporation, to be effected as a reduction of the stated capital of a public corporation.

Position: Favourable rulings provided.

Reasons: In compliance with the law and previous positions.

2006 Ruling 2005-0162951R3 - Single-wing butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Standard Single-wing butterfly.

Position: Favourable rulings issued.

Reasons: No new issues.

2006 Ruling 2006-0188101R3 - Multiple-wing Split-up butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: No Significant Issues.

Technical Interpretation - External

1 December 2006 External T.I. 2006-0188911E5 - adjusted cost base of property

Unedited CRA Tags
54 3

Principal Issues: What is the adjusted cost base of art that was inappropriately seized by a foreign government and then restituted to a Canadian taxpayer?

Position: The adjusted cost base is the fair market value of the art when the Canadian taxpayer acquires legal and beneficial ownership.

Reasons: Any appreciation in the value of the art attributable to the period prior to the time when the Canadian taxpayer acquired legal and beneficial ownership would not be taxable under the Act.

30 November 2006 External T.I. 2006-0191541E5 F - Primes d'assurance-vie et d'assurance-invalidité

Unedited CRA Tags
20(1)e.1) 20(1)e.2)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e.2)
premiums on life insurance policy required by lender deductible even though loan government-guaranteed, but premiums on lender-required disability policy not deductible
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Financing Expenditures
premiums on disability policy required by lender are capital expenditures
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e.1)
guarantee fee does not include premiums on lender-required insurance policy
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(9) - Disposition - Paragraph (j)
tax free receipt of life insurance proceeds by lender on policy required by it of the borrower
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(9) - Disposition - Paragraph (h)
tax free receipt of disability insurance proceeds by lender on policy required by it of the borrower

Principales Questions:

1. Les primes d'une police d'assurance-vie ou d'assurance-invalidité exigée par une institution financière comme garantie d'un prêt, sont-elles déductibles dans le calcul du revenu d'entreprise ou de bien?

2. Les prestations reçues par l'institution financière en vertu de telles polices sont-elles imposables pour l'emprunteur titulaire?

Position Adoptée:

Les primes d'assurance-vie pourraient être déductibles tandis que les primes d'assurance-invalidité ne seraient pas déductibles.
Généralement non.

Raisons:

30 November 2006 External T.I. 2006-0185041E5 - Portfolio gains - part capital and part income?

Unedited CRA Tags
9(1) 38(1)

Principal Issues: Whether gains from dispositions in a portfolio which a TP has segregated into two parts - one that is used for day trading and the other for long-term investment - can be treated partly on income account and partly on capital account.

Position: Generally no.

Reasons: The CRA's initial presumption is that a TP's gains from dispositions of securities are either all on income account or all on capital account, as the case may be. However, the CRA recognizes that, although rare, occasionally a TP may legitimately hold some securities on capital account and some securities on income account.

23 November 2006 External T.I. 2006-0210261E5 F - Canadian Exploration Expenses - Sampling

Unedited CRA Tags
66.1(6) "Canadian Exploration Expense"

Principal Issues: A corporation is involved in Canadian exploration activities and finances itself by issuing flow-through shares. In the course of its exploration activities, the corporation does some bulk sampling and incurs expenses to that effect. The corporation is able to extract a certain quantity of gold from its samples. Whether the expenses incurred by the taxpayer and related to the bulk sampling constitute Canadian exploration expenses ("CEE"). Whether the revenues generated by the sale of the gold must be netted out in computing CEE. Whether the fact that the revenues generated by the sale of the gold are earned in the year subsequent to the year in which the expenses are incurred makes a difference.

Position: General comments. Paragraph (f) of the definition of CEE in subsection 66.1(6) contains a purpose test. The determination as to whether any particular expense incurred by a corporation qualifies as CEE (and more particularly whether the purpose test in paragraph (f) is met), can only be made following a review of the specific facts and circumstances surrounding a particular situation. Paragraph (k.2) of the definition of CEE in subsection 66.1(6) requires that the revenues generated by the sale of the gold in the given situation be netted out in computing CEE. Technically, paragraph (k.2) will apply to such revenues even if they are earned in the year subsequent to the year in which the expenses otherwise described in subparagraph (f)(i), (iii) or (iv) are incurred.

Reasons: Wording of the Act.

15 November 2006 External T.I. 2006-0190041E5 F - Biogas / Codigestion Process / Produced for Sale

Unedited CRA Tags
Schedule II 43.1 43.2
Summary Under
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 43.1
supplementation of manure with organic waste in input to anaerobic digester would disqualify it as Class 43.1 property, as would the sale of more than 50% of the biogas produced

Principal Issues: In a given fact situation, where the taxpayer produces biogas through a digester using a codigestion process (manure and other substances) and where the biogas production is purified into methane in part for sale, whether (1) the digester is property that could be included in class 43.1? and (2) the purification of the biogas into methane for sale is an admissible use of the biogas for the purpose of class 43.1?

Position: (1) No. (2) No.

Reasons: The words of subparagraph (d)(xiii) of class 43.1 of Schedule II of the Income Tax Regulations provide that (1) only property used to produce biogas from manure qualifies for inclusion in this class and (2) the biogas must be used by the taxpayer or a lessee primarily to produce heat or electricity.

Conference

6 October 2006 Roundtable, 2006-0197151C6 F - Acquisition selon convention entre actionnaires

Unedited CRA Tags
70(9.2)
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(9.2)
children’s exercise of a right in a shareholders’ agreement to acquire farmco shares that is triggered on their father’s death would not be a consequence of his death
Words and Phrases
consequence of the death
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(a)
children exercising right in shareholders’ agreement to acquire shares on father's death would not be a consequence of his death, cf. if pursuant to his will

Principal Issues: Une convention entre actionnaires donne le droit à des enfants d'acquérir les actions d'une société agricole pour 1$ après le décès de leur père. Si les enfants se prévalent de leur droit d'achat, est-ce que ces actions sont transférées ou distribuées aux enfants par suite du décès du père aux fins du paragraphe 70(9.2) de la Loi?

Position: L'acquisition des actions par un enfant se ferait suite à l'exercice du droit d'achat obtenu au décès et non suite au décès du père.

Reasons: Au moment du décès, les enfants obtiennent le choix d'acquérir ou non les actions du père. L'acquisition des actions résulte de l'exercice de ce choix.