Income Tax Technical News, No. 7, 21 February 1996 (cancelled)

The location of a savings account on a reserve would not, by itself, be sufficient to exempt the interest income earned thereon by an Indian. For instance, an Indian who lived off the reserve and earned only taxable income, and used an automated teller machine located off the reserve to deposit funds into a bank account located on the reserve, would not be exempt from tax on the interest income.

"Revenue Canada has always maintained the view that term deposits, bankers' acceptances and government treasury bills are not located on a reserve and not exempt."

Where property is held by a bare trust, RC will ignore the trust for income tax purposes and will consider the transferor/settlor to be the owner of the property for purposes of the Act.

Lease inducement payments made by a landlord on income account with respect to the initial lease of space in a project as well as payments made to facilitate the re-leasing of such space are now required to be amortized over the term of the related leases.

"A revocable living trust should be recognized for income tax purposes at the time that legal title to property is transferred to it and ... the transfer of the property is at its full fair market value (and not at the value of the remainder interest only)."

However, "transfers of property to a protective trust will not result in a disposition ...".

Where an individual retires from all employment on the sale of the employer's active business but agrees to carry on certain administrative duties for the employer for which no remuneration or director's fees will be received, the individual may still be considered to have retired or to have lost the employment.

Where no assurance or offer of new employment with an affiliate has been given at the time an individual ceases employment, there will be considered to be a loss of employment.

Where the employer's pension plan recognizes any part of the service with a former related employer, then all the years of service with the former employer can be included in the total number of years for purposes of calculating the eligible amount of the retiring allowance.

Where an employee incentive plan bases a bonus on certain criteria such as appreciation in the employer's stock value, and sales increases, the deferral of the payment of the bonus for an additional three years will not be excepted by paragraph (k) because such bonus relates to services rendered in more than one taxation year.

An amendment to the articles allowing a corporation to pay a stock dividend in lieu of a cash dividend on a preferred share will result in the loss of the grandfathered status of the preferred share.

Discussion of when shareholders of a closely-held corporation are considered to be acting in concert or otherwise to represent a group.

"A revocable living trust should be recognized for income tax purposes at the time that legal title to property is transferred to it and ... the transfer of the property is at its full fair market value (and not at the value of the remainder interest only)."

However, "transfers of property to a protective trust will not result in a disposition ...".

The filing of a protective capital gains election under s. 110.6(19) in respect of a property will not by itself prejudice a claim that the entire property qualifies as a principal residence.

After referring to the Clem Industrial case, Mr. Hiltz stated:

"Ordinarily, if an arm's length sale of shares occurs within a short time after a dividend was received on the shares, we will consider this to be strongly indicative that one of the purposes of the dividend was to reduce the capital gain that would otherwise have been realized on the share sale."

Employer contributions under a pension plan or deferred profit sharing plan are not considered to have vested in the retiree at the time of the payment of a retiring allowance if, at that time, the employee is not entitled to either a pension or a lump sum amount which includes the employer contributions.

Where under an employee stock option plan, it is the employee rather than the employer who has the option to choose cash instead of shares, s. 7(1)(b) will apply in respect of the cash that the employee elects to receive in satisfaction of his rights under the plan.

Where under an employee stock option plan, the employee has the option to receive cash instead of shares, s. 7(3)(b) will not deny a deduction by the employer of a resulting cash payment because no shares will have been sold or issued under the plan.

After stating that:

At previous conferences, Revenue Canada has indicated that, in situations where a corporate taxpayer has acquired, on a section 85 "rollover," property that was non-depreciable capital property of a controlling shareholder or a "sister" corporation, it was ordinarily prepared to accept that the nature of the transferred property would not have changed solely because the taxpayer resold the property soon after the rollover.

Revenue Canada stated:

Revenue Canada does not consider the decision in Mara to have affected its position with respect to the nature of non-depreciable capital property following a rollover within a corporate group.

The questioner referred to the Revenue Canada position - that, in situations where a corporate taxpayer has acquired, on a section 85 "rollover," property that was non-depreciable capital property of a controlling shareholder or a "sister" corporation, it was ordinarily prepared to accept that the nature of the transferred property would not have changed solely because the taxpayer resold the property soon after the rollover – and asked whether this position was affected by the Mara Properties decision (95 D.T.C. 5168 [subsequently reversed at [1996] 2 S.C.R. 161]). Revenue Canada responded:

Revenue Canada does not consider the decision in Mara to have affected its position with respect to the nature of non-depreciable capital property following a rollover within a corporate group. Our position remains as stated at the 1983 and 1984 conferences [1983 CTF Roundtable, 1983 Conference Report, p. 785; and 1984 CTF Roundtable, Q. 49].