Principales Questions: Question 5A) a) When an immovable rental property has been transferred to a trust, whether the nature of the attributed income under subsection 75(2) retains its nature? b) If the attributed income retains its nature, how the CRA expects the tax practitioners to prepare and file the T3 Trust Income Tax and Information Return and the T3 Statement of Trust Income Allocations and Designations ("T3 Statement") in order to ensure that the rental income is considered in calculating the taxpayer's "RRSP deduction limit" under subsection 146(1)? Question 5B) Mr. X owns the controlling shares of the capital stock of Opco. A protective trust, settled by Mr. X, owns the remaining shares of the capital stock of Opco. Mr. X is the sole beneficiary of the protective trust. The shares owned by the protective trust have the following attributes: paid-up capital of $10; adjusted cost base of $10,000 and redemption value of $10,000. On the redemption by Opco of some shares owned by the protective trust, a deemed dividend is attributed to Mr. X by virtue of subsection 75(2) and the capital loss would be deemed to be nil by virtue of subsection 40(3.6). a) Whether the loss will be deemed to be nil in this situation. b) In the affirmative, whether the loss determined without reference to subsection 40(3.6) will be attributed to Mr. X. c) As a result of the application of paragraph 40(3.6)(b), whether the loss will be added to the adjusted cost base of the shares owned by Mr. X or to the adjusted cost base of the shares owned by the protective trust. d) If Mr. X does not own any shares of the capital stock of Opco and if all the shares of the capital stock of Opco are owned by the protective trust, whether the trust will be affiliated to Opco under section 251.1, and whether the answers to questions a), b) and c) will be different.
Position Adoptée: Question 5A) a) When subsection 75(2) applies, the rental income from the immovable property is deemed to be income from property of that person. For purposes of calculating the "RRSP deduction limit" of the person referred to in subsection 75(2), that income from property may be included in his or her "earned income", as stated in the definition of that term in subparagraph146(1)(a)(iii). b) As the rental income from immovable property under subsection 75(2) retains its nature, this income should be reported in box 26 "other income" of the T3 Statement, followed by an asterisk referring to the footnotes area of the statement. In this area, the preparer should mention that the income included in box 26 constitutes net rental income from an immovable property subject to subsection 75(2) of the ITA. Question 5B) a) Yes, the loss will be deemed to be nil; b) The loss would not be attributed to anyone; c) The loss will be added to adjusted cost base of the shares owned by the protective trust; d) In this situation, the protective trust will still be affiliated to Opco and the answers to questions a), b) and c) would be the same.
Raisons: Based on our interpretation of relevant provisions of the Act and consistent with our positions in previous technical interpretations.
