18 October 2016 External T.I. 2015-0608051E5 F - Emigration of a trust -- translation

Principal Issues: 1.Whether a trust that ceases to be resident in Canada can make an election under subsection 220(4.5)? 2. Whether the Minister can, pursuant to subsection 220(4.54), extend the time for making such election and for furnishing and accepting security under that subsection?

Position: 1. Yes. 2. Yes, if the Minister considers it just and equitable to do so.

Reasons: Application of the Act.

XXXXXXXXXX 2015-060805

Sylvain Grégoire

October 18, 2016

Mr. XXXXXXXXXX,

Emigration of a trust

This is in response to your e-mail dated September 10, 2015, in which you requested our opinion on the application of several provisions of the Act to a trust in a situation where its trustee ceases to be resident in Canada. We therefore understand that you believe that the provisions of subsection 128.1(4) will apply in such circumstances.

We apologize for the delay in responding to your request.

Unless otherwise indicated, all statutory references herein are references to the provisions of the Income Tax Act (the "Act").

Our comments

This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Subsection 104(2) provides that, for the purposes of the Act, a trust is deemed to be in respect of the trust property an individual. The definition of "individual" in subsection 248(1) states that an individual means a person other than a corporation. The definition of "taxpayers" in subsection 248(1) provides that the term includes any person. As a result, we are of the view that subsection 128.1(4), which applies to taxpayers who cease to be resident in Canada, can apply to a trust. However, the question of whether a trust ceases to reside in Canada is a question of fact to which we are unable to respond in the context of a request for a technical interpretation. Recall that the highest court in the land in Fundy Settlement v. Canada, 2012 SCC 14 confirmed that the place of residence of a trust under Canadian tax law is the place where the central management and control of the trust is actually exercised. This place may therefore differ from the place where the trustee(s) reside.

Subsection 220(4.5) allows an individual to make an election to defer payment of tax payable from the deemed disposition of property as a consequence of subsection 128.1(4). As stated above, since a trust is deemed to be an individual in respect of its property, the trust would be entitled to make the election under subsection 220(4.5). This election must be filed on or before the balance-due day applicable to the trust for the emigration year. Paragraph (a) of the definition "balance-due day" in subsection 248(1) states that in the case of a trust, that day is 90 days after the end of the taxpayer's taxation year. The term "emigration year" means, for the purposes of section 220, the taxation year that includes the time at which the individual is deemed by paragraph 128.1(4)(b) to have disposed of each property of the individual. Under this paragraph, this event is presumed to occur immediately before the time that is immediately before the taxpayer's emigration. Since subparagraph 128.1(4)(a)(i) provides that the taxation year of a trust is deemed to have ended immediately before its emigration, the taxation year referred to in subsection 220(4.5) is therefore the one ending immediately prior to the emigration of the trust. As a result, the trust must elect under subsection 220(4.5) on or before the 90th day after the trust ceases to be resident in Canada.

In addition, under subsection 220(4.54), the Minister may extend the time for making an election under subsection 220(4.5) and/or the prescribed time for furnishing and accepting security under subsection 220(4.5). In our view, such potential extension also applies to emigrant trusts. However, the deeming provision in subsection 220(4.51) applies only to individuals other than trusts.

We trust that our comments will be of assistance.

Dave Beaulne, CPA, CA
Section Manager
For the Director
International Operations Division
Income Tax Rulings Directorate
Legislative Policy Branch