Principal Issues: [TaxInterpretations translation]
Review of conclusions reached in interpretations 1999-000270 and 2000-002757 regarding an amount received of $XXXXXXXXXX.
Position:
We agree with the conclusions given in those files that this was a reimbursement of expenses and was taxable under paragraph 12(1)(x) of the Act.
Reasons:
Same reasons as interpretation 2000-002757 for considering the amount received to be a reimbursement of expenses. Inclusion in income under 12(1)(x) because all the conditions set out in that paragraph were satisfied.
September 21, 2000
XXXXXXXXXX Tax Services Headquarters
Businesses Audit Sylvie Labarre, CA
(613) 957-8953
Attention: XXXXXXXXXX
2000-004618Amount received in XXXXXXXXXX by XXXXXXXXXX
This letter is in response to the technical interpretations (1999-000270 and 2000-002757) that we issued on January 12, 2000 and June 13, 2000 with respect to the XXXXXXXXXX file and to the request of Mr. Bill McCloskey, Deputy Commissioner of the Policy and Legislation Branch, to review the conclusions reached in those technical interpretations.
We have reviewed the file involving the tax treatment of an amount of $XXXXXXXXXX received by XXXXXXXXXX following an out-of-court settlement reached on XXXXXXXXXX.
Following this review, we support the opinion given on January 12 and June 13, 2000 in that file to the effect that the amount of $XXXXXXXXXX represented the repayment of capital and interest payments already made by XXXXXXXXXX on the mortgage transferred to XXXXXXXXXX and which should have been assumed by XXXXXXXXXX since XXXXXXXXXX, for the reasons indicated in the letter of June 13, 2000. It should be noted that XXXXXXXXXX had had a deduction for the payment of interest on this mortgage since XXXXXXXXXX.
We are also of the view that the amount of $XXXXXXXXXX is an amount referred to in paragraph 12(1)(x) of the Act that must be included in XXXXXXXXXX's income in XXXXXXXXXX for the following reasons:
- it is reasonable to consider the amount received as a reimbursement in the form of assistance in respect of an outlay or expense. This includes the reimbursement of a deductible expense or a non-deductible expense such as a capital expenditure.
- the amount was received by XXXXXXXXXX in the course of earning income from a business or property. In our view, this condition is satisfied since XXXXXXXXXX received income from his rental properties and the reimbursement received by XXXXXXXXXX related to those rental properties. In fact, it entailed a reimbursement of mortgage payments that he had made to earn rental income and for which an interest deduction had been granted.
- XXXXXXXXXX paid the amount of $XXXXXXXXXX in the course of earning income from a business or property or with a view to obtaining a benefit for himself. The assumption of a new mortgage and the reimbursement of mortgage payments that he had to make in respect of that mortgage enabled him to keep all his rental properties and retain all his rental income, which constituted a benefit to him. The mortgage payments were expenses that he would have had to incur to earn his rental income if the mortgage had been assumed by him at the time of partition. Consequently, we are of the view that the amount was also paid in the course of earning rental income.
We hope you find these comments useful. Should you require additional information regarding the content of this document, please do not hesitate to contact us.
Rick Biscaro, CA
Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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