5 February 1997 Ministerial Letter 9636598 - AUDITOR GENERAL'S REPORT ON FAMILY TRUSTS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

MINISTER/DM'S OFFICE 6-07473M
ADM'S OFFICE
RETURN TO RULINGS, 15TH FLOOR, ALBION TOWER
PENDING

February 5, 1997

XXXXXXXXXX

Dear Colleague:

Thank you for your letter of October 24, 1996, concerning the article entitled, "Canada's Finances at a Crossroads", which appeared in the Windsor Star on October 18, 1996.

This article comments on the Auditor General's observations on family trusts and the taxation of property leaving Canada. These observations raised concerns about tax policy and the administration of the Income Tax Act. As you know, subsequent to the release of the Auditor General's report, those concerns were considered by the House of Commons Standing Committee on Finance in its report released on September 18, 1996.

The Committee's main findings on the administrative concerns identified in the Auditor General's report were that Revenue Canada had, under existing tax policy, no basis for refusing to issue rulings that clarified an acknowledged ambiguity in the Act; it was not possible to conclude that the rulings would result in any significant loss in tax revenues; and there was no suggestion of political or other interference in those rulings or any impropriety on the part of any official. However, the Committee indicated that Revenue Canada and the Department of Finance could have more fully documented the decision-making process that led to the rulings.

While the Committee found that the specific rulings referred to in the report were issued in accordance with existing provisions of the Act, its majority report recommended that changes be made to the Act to address the tax policy issues. The Department of Finance responded to those recommendations on October 2, 1996, by announcing changes to the Act that will be effective as of that date. If enacted as proposed, these changes will ensure that all persons who leave Canada or transfer property from Canada, including trusts, will pay tax on most capital gains that have accrued in Canada up to the time of departure or transfer. Exceptions to this rule will include gains that accrue on Canadian real estate and Canadian business property, since Canada retains the right to tax capital gains on this type of property when it is ultimately sold.

Revenue Canada is also taking measures to ensure that a similar situation will not occur again. Under the new procedures all advance income tax rulings will now be published and will be accessible to the public and decisions made by Revenue officials will be well documented.

Thank you for bringing this matter to my attention.

		                                                Yours sincerely,

Jane Stewart, P.C., M.P.

George Keable
957-2046
January 9, 1997
963659