Income Tax Severed Letters - 2007-04-13

Ruling

2007 Ruling 2006-0216551R3 - Interest Expense - Substituted Property

Unedited CRA Tags
20(1)(c)

Principal Issues: Does interest remain deductible when property that was acquired in the course of borrowing money is substituted for other property?

Position: YES

Reasons: Substituted Property - paragraph 27 of IT 533

2007 Ruling 2006-0201621R3 F - Liquidation d'une OSBL

Unedited CRA Tags
149(10) 39

Principales Questions:
1. À quel moment les sociétés cessent-t-elles d'être exemptées d'impôt en vertu de l'alinéa 149(1)l) et quel est le "moment donné" pour les fins du paragraphe 149(10)?
2. Quel est le traitement des biens reçus par les membres lors de la liquidation?

Position Adoptée:
1. Pourvu que les sociétés soient exemptées jusqu'au moment où elles disposeront de la totalité où presque de leurs actifs, elles cesseront d'être exemptées immédiatement après la disposition de la totalité ou presque de leurs actifs. Par conséquent, le "moment donné" au paragraphe 149(10) sera le moment immédiatement après la disposition.
2. Les biens reçus par les membres lors de la liquidation seront traités comme une distribution de capital représentant le produit de disposition de leurs droits de membres et donnant lieu à un gain en capital.

Raisons:
1. En disposant de tous leurs actifs, les sociétés cesseront d'être administrées aux fins pour lesquelles elles ont été constituées. Par conséquent, elles cesseront d'être exonérées au moment immédiatement après la disposition de la totalité de leurs actifs et le paragraphe 149(10) s'appliquera à ce moment.
2. Application de la position du paragraphe 9 du IT-409 qui est toujours valide.

XXXXXXXXXX 2006-020162

2006 Ruling 2005-0141651R3 - unregistered pension arrangement

Unedited CRA Tags
56 248(1)

Principal Issues: Is the arrangement an SDA?

Position: No.

Reasons: The plan provides benefits that are acceptable under a supplemental pension plan.

2006 Ruling 2006-0169391R3 - Deferred Salary Leave Plan

Unedited CRA Tags
R.6801(a)

Principal Issues: Will the Taxpayer's proposed salary leave plan satisfy the requirements in paragraph 6801(a) of the Regulations.

Position: Yes.

Reasons: Based on the facts and proposed transactions as described.

XXXXXXXXXX 2006-016939

Ministerial Correspondence

4 December 2006 Ministerial Correspondence 2006-0214951M4 - Pension Income Splitting

Unedited CRA Tags
56(1)(a)

Principal Issues: Is the splitting of pension income permitted under the Income Tax Act?

Position: Not currently, but will be permitted beginning in 2007.

Reasons: Announced by the Minister of Finance on Oct. 31, 2006, that Canadian resident taxpayers who receive pension income that qualifies for the existing pension tax credit will be permitted to allocate to their resident spouse or common-law partner up to one-half of that income.

Technical Interpretation - External

4 April 2007 External T.I. 2007-0227621E5 - Education Tax Credit Directed Field Studies

Unedited CRA Tags
118.6(1)

Principal Issues: Application of education tax credit where student is working full-time in the field.

Position: The education tax credit is generally available in this situation where all other criteria are met.

Reasons: The March 2004 budget eliminated the exclusion for courses taken while an individual is employed and the course is taken in connection with that employment.

2007-022762
XXXXXXXXXX Eliza Erskine
(613) 274-3022
April 4, 2007

4 April 2007 External T.I. 2006-0214411E5 - ACB of partnership

Unedited CRA Tags
53 96 85 54
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1.01)
income is allocated to the departing partner for the partnership year of departure but with ACB adjustment made at time of disposition

Principal Issues: In a hypothetical situation, a taxpayer acquires a partnership interest in an arm's length transaction from two existing partners for $200,000. The taxpayer's capital account for accounting purposes was allocated $30,000 which reflected his one-third interest in the partnership. The fiscal year end of the partnership is December 31. The taxpayer incorporated a professional corporation with the intention of rolling the partnership interest to the corporation under section 85 of the Income Tax Act. How is the ACB of the partnership interest of the taxpayer calculated? What is the impact of proposed subsection 96(1.01)?

Position: General comments given.

Reasons: Question of fact.

6 March 2007 External T.I. 2007-0219791E5 - Interest deductibility - change of use

Unedited CRA Tags
20(1)(c)

Principal Issues:
A taxpayer borrowed money to acquire shares of two corporations. Subsequently, the shares of one corporation are disposed of to a Holdco in accordance with the rollover provision in section 85. The individual received as consideration for the disposition an amount of cash, which is used for personal purposes, and shares of Holdco. The question is whether or not the interest on the outstanding loan balance is deductible.

Position:
The portion of the outstanding loan balance attributed to the acquisition of the shares disposed of will remain deductible if the value of the Holdco shares received as consideration for the shares disposed of exceeds the amount of the portion of outstanding loan balance.

Reasons:
Application of the flexible approach to linking in determining the current use.

19 February 2007 External T.I. 2006-0191371E5 - Income of Contractors

Unedited CRA Tags
9(1) 12(1)(b)

Principal Issues: Is a taxpayer who processes data to create survey maps entitled to use the completion method of revenue recognition as outlined in IT-92R2?

Position: No

Reasons: The processing of data to create survey maps would not fall within the scope of the administrative position in IT-92R2 that allows certain contractors to use the completion method of revenue recognition.

2006-019137
XXXXXXXXXX Bruce Hartt
(613) 946-3558
February 19, 2007