CCRA’s argument that the amounts should be income on the basis that it was a sale based on production or use, was not correct because it was really a single final transaction transferring all the timber.
Also, on January 3, 2003, CCRA introduced new IT-373R2 which discusses the taxation of woodlots including woodlots operated as farms. The criteria needed for capital treatment and capital gain exemption are discussed.
SEASONAL AGRICULTURAL WORKERS
In February, 2003 CCRA introduced Guide RC4004 - Seasonal Agricultural Workers Program. This Guide discusses how seasonal agricultural workers are taxed, employer withholdings, waivers from withholding tax, transferring a worker to another employer, and the filing of tax returns, and double taxation issues.
ROLLOVER TO CHILD
In a December 23, 2002 Technical Interpretation, CCRA notes that where farm property is rolled over to an adult child and the property is then sold within a three year period by the child who uses the qualified farm property capital gain deduction, CCRA can deny the tax deferred rollover.
NISA FUNDS - NOT SEIZABLE BY CREDITORS
It was noted in the December 12, 2002 issue of the Manitoba Co-operator that the Manitoba Court of Appeal ruled that a creditor may not seize the farmer’s NISA account. This overturns a lower court ruling. (Mini G. Enterprises Ltd. vs. Gary and Ron Kendrick)
LOAN TO TERMINALLY ILL POLICYHOLDER
In a February 25, 2003 Technical Interpretation, CCRA notes that the Financial Services Commission of Ontario has recommended that life insurance companies should provide funds to terminally ill policyholders who have a life expectancy of less than twenty-four months.
While not legally obligated to provide funding to these policyholders, many life insurers are considering providing loans to the policyholders out of the insurer’s general funds.
CCRA note in a February 4, 2003 Technical Interpretation that where the income of a spousal trust is payable to the spouse, if the trustee would like the income taxed in the trust an election must be made. Otherwise, the amount must be deductible to the trust and included in income by the spouse.
U.S. REAL ESTATE SALES
The United States imposes taxes on profits on the sale of U.S. real estate by a Canadian under the Foreign Investment in Real Property Tax Act. To enforce collection, a 10% withholding tax is paid to the IRS by the purchaser at the time of purchase. A Canadian person may be exempt from the 10% withholding tax if the selling price is less than $300,000 and the buyer intends to use the property as a “residence”. The buyer must sign an affidavit to this effect. Alternatively, if this exemption is not available, the vendor can apply to the IRS for a reduction in the withholding tax to the maximum possible U.S. tax.
Also, some states have a withholding tax on the selling price of real property,
including Arizona and Hawaii.
The Canadian person then files a U.S. tax return (Form 1040NR - Individual or Form 1120F - Corporation) and shows the withholding tax, if applicable, as a tax installment. A foreign tax credit may be claimed on the Canadian tax return to the extent that the income is taxed on the Canadian tax return.
Individuals who cease to be resident in Canada are deemed to have disposed of property at fair market value with the following exceptions (Subsection 128.1(4)):
(i)real property located in Canada;
(ii)property used in a business carried on through a Canadian permanent establishment;
(iii)certain “rights and interests”, such as pension and deferred income plans, RPPs, RCAs, RRSPs, RRIFs, CPP, OAS, etc.;
(iv)employee stock options; and
(v)where the individual was resident in Canada for 60 months or less in the last 120 months before leaving Canada, any property owned by the individual when the individual last moved to Canada or inherited during the period of residency.
The emigrating individual may defer payment of the tax on the capital gain by posting security with CCRA.
However, security is not generally required on the first $50,000 of taxable capital gains resulting from the deemed disposition.
It was noted in the December 30, 2002
2003 SECOND QUARTERISSUE NO. 62PAGE 5
Tax Tips & Traps