Income Tax Severed Letters - 2008-01-25

Ruling

2007 Ruling 2006-0218911R3 - 132.2 reorganization with an internal butterfly

Unedited CRA Tags
132.2 55(2)

Principal Issues: 1. Whether the transfer of all the assets of a second tier trust to an income trust using section 132.2 is problematic; 2. Whether having a corporation borrow funds and availing itself of the exception under 212(1)(b)(vii) where the funds are subsequently lent to an internal partnership is problematic; 3. Whether transforming a general partnership into a limited partnership results in the creation of a new partnership after October 2006.

Position: No on all counts.

Reasons: 1. The issuance of units of the second-tier trust to the unitholders of the income trust as a return of capital makes it a mutual fund trust and the other requirements for the application of section 132.2 are met; 2. In this case, subparagraph 212(1)(b)(vii) would apply because the borrower is a corporation; 3. In this case, subject to provincial partnership law, the amendments of the terms of the general partnership to make it a limited partnership do not result in the termination of the partnership.

2007 Ruling 2007-0244561R3 - Withholding Tax Issue

Unedited CRA Tags
212(1)(b)(vii) 15(2.3)

Principal Issues: Are the loans made to Finco under the 3P Project exempt under subparagraph 212(1)(b)(vii) of the Act?

Position: YES

Reasons: Similar Rulings provided before

2007 Ruling 2007-0259331R3 - Third supplemental ruling 2007-022609

Unedited CRA Tags
85.1(3) 95(1) XXXXXXXXXX

Principal Issues: Changes to the facts and the proposed transactions described in the advance income tax ruling no. 2007-022609 and in the supplemental rulings 2007-024291 and 2007-025506 to provide that instead of creating a new XXXXXXXXXX corporation to acquire the shares of Sub1 held by Opco, an inactive corporation already in existence will be used. Will that change of proposed transactions modify our ruling concerning XXXXXXXXXX

Position: The ruling will be amended to indicate that it applies to the taxation year beginning at the transfer of the Sub 1 shares from Opco. Otherwise, the ruling remains the same.

Reasons: If the Sub1 shares are transferred immediately at the beginning of the new taxation year, the cost amount of the Sub1 shares will represent at any time in that taxation year more than XXXXXXXXXX % of the total of the cost amounts of the property of XXXXXXXXXX Holdco #1 (the other asset being an amount of US$ XXXXXXXXXX ) because the time immediately before the transfer (when the condition is not met) is in the previous taxation year.

2007 Ruling 2007-0262651R3 - Time extension

Principal Issues: Request for time extension

Position: Granted

2007 Ruling 2006-0215751R3 - Cross-border butterfly

Unedited CRA Tags
55(3.1)(b) 55(3.2)(h)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution

Principal Issues: Where a three-party share exchange would result in the non-application of paragraph 55(3.2)(h), whether GAAR should apply to that share exchange?

Position: No.

Reasons: That share exchange would not appear to result directly or indirectly in a misuse or an abuse having regard to the provisions of the Income Tax Act (in particular, paragraph 55(3.1)(b)) when read as a whole.

Technical Interpretation - External

21 January 2008 External T.I. 2007-0256101E5 - Receipt of grant from Aboriginal Business Canada

Unedited CRA Tags
12(1)(x) 7300 6702 12(2.2), 13(7.4), 53(2.1)

Principal Issues: What is the proper tax treatment of a grant received from Aboriginal Business Canada?

Position: If the grant is not otherwise included in income or applied to reduce an expense or the cost of property, i.e., unless one of the exceptions in subparagraphs 12(1)(x)(v) to (viii) applies, paragraph 12(1)(x) would bring the amount of the grant into income in the year received.

Reasons: Paragraph 2 of IT-273R2

18 January 2008 External T.I. 2007-0258231E5 - Indian Act Exemptions for Employment Income

Unedited CRA Tags
81(1)(a)

Principal Issues: How does the ITA tax a Status Indian earning employment income? How is an independent contractor who is a Status Indian taxed?

Position: Income earned by a Status Indian may be exempt from tax if the income is situated on a reserve. The connecting factors test is applied to the source of income in order to make this determination.

Reasons: Consistent with previous positions, the Guidelines and the connecting factors test.

18 January 2008 External T.I. 2006-0195791E5 - Transfer pricing

Unedited CRA Tags
17(8) 247(2) 247(7)

Principal Issues: Whether subsection 247(2) would apply to reduce the cost of a non-interest-bearing loan made by a Canadian corporation to its controlled foreign affiliate.

Position: Nothing in the fact pattern indicates that subsection 247(2) would apply.

Reasons: Application of subsection 247(2) depends on the facts of each case.

9 January 2008 External T.I. 2007-0257721E5 - GRIP Calculation

Unedited CRA Tags
89(1) 89(7) 5(7)

Principal Issues: Manner of calculating GRIP. (1) Calculation of GRIP for first taxation year of corporation ending after 2005 (2) Must a negative "opening GRIP" balance (determined under the formula A - B in subsection 89(7)) be carried forward into the computation of GRIP? (3) Why does line 300 of T2 Schedule 53 only take into consideration eligible dividends paid in the previous taxation year? (4) Whether taxable dividend paid by CCPC in 2005 calendar year, but in taxation year of CCPC ending after 2005 has any impact on GRIP calculation?

Position: (1) Full amount of taxable income is included in computation of GRIP for first taxation year ending after 2005, including income attributable to pre-2006 portion of that taxation year. (2) No. (3) GRIP formula only takes into account dividends paid in previous year. However, if eligible dividends in current year exceed GRIP, an excessive eligible dividend designation will result. (4) No impact.

Reasons: Plain wording of the provisions

3 January 2008 External T.I. 2007-0260271E5 - Tree Nursery - Farming

Unedited CRA Tags
248(1)

Principal Issues: Does a tree nursery operation constitute "farming" for purposes of the Act?

Position: Question of fact.

Reasons: While the growing of plants in a greenhouse for a commercial profit generally qualifies as farming, other activities undertaken by a nursery business may not constitute farming.

18 December 2007 External T.I. 2007-0246011E5 - Medical Expense- Registered Clinical Counsellor

Unedited CRA Tags
118.2(2)(a)

Principal Issues: Whether fees paid to a registered clinical counsellor, in the province of British Columbia, would be eligible for the medical expense tax credit.

Position: Likely not.

Reasons: Payments of fees to a registered clinical counsellor would not qualify as eligible medical expenses unless amounts were paid for "medical services" performed by a medical practitioner authorized to practice as such according to the laws of the jurisdiction in which the service was rendered. Based on a review of the Medical Practitioners Act of British Columbia it is our understanding that registered clinical counsellors are not currently recognized.

11 December 2007 External T.I. 2007-0254211E5 - Lease of Quota - Farming or Rental Income

Unedited CRA Tags
248(1) 9(1) 12(1)(g) 28

Principal Issues: Is income from leasing farm quota farming income or property income from rent?

Position: Question of fact, dependent upon the circumstances.

Reasons: Where there is no farming business - income would constitute rent. Where there is a farming business carried on, determining considerations include whether the rental activities constitute a separate activity or business, and, whether the leasing income and activity is incidental to the farming income and activity.

6 November 2007 External T.I. 2007-0239881E5 - Funding of a retirement compensation Arrangement

Unedited CRA Tags
248(1) 207.5

Principal Issues: Clarification of comments on funding of RCAs found in E9123315 and clarification of the tax consequences when a retiring allowance is paid over an extended period.

Position: General comments provided.

5 November 2007 External T.I. 2007-0249291E5 - Retiring Allowance

Unedited CRA Tags
Subsection 248(1)

Principal Issues: Is a payment from a union to one of its members a retiring allowance?

Position: No.

Reasons: Definition of retiring allowance in subsection 248(1) of the Income Tax Act.