Narrowness of the exceptions (pp. 3-6)
The exceptions in ss. 150(1.2)(a) to (n) are too narrow:
- Re s. 150(1.2)(b): its $50,000 limit should be based on cost amount rather than FMV.
- Re s. 150(1.2)(a): escrow arrangements in commercial transactions often exceed three months and, in any event, there should be a non-time limited exception for trusts whose principal purpose is to secure arm’s length sale-agreement covenants.
- There should be a separate exception for trusts principally holding personal-use family property.
- Re s. 150(1.2)(i): the exception for GRE estates is problematic since a return designation as such is required, so that it should extend to estates that otherwise would have been a GRE and that are promptly wound up.
- Re s. 150(1.2)(c): the apparent requirement for lawyers to file a tax return disclosing inter alia the client name and trust amount re a client-specific trust is contrary to s. 8 of the Charter (see Chambre des Notaires).
Penalty should not apply to s. 94 trust (pp. 6-7)
The s. 163(6) penalty should be reconsidered and, in any event, should not apply to a s. 94 trust (which, absent s. 150(1.2), had no filing obligation).
Alternatives to proposal of denying excess lower-tier losses (pp. 8-10)
There will be no ability to carryover unutilized limited partnership losses. A loss of a lower-tier partnership that exceeds an upper-tier partnership’s amount at risk in that lower-tier partnership is denied forever.
An alternative approach would be to permit an election when a subsequent “release event” occurs (being anything that increases the amount at risk in the lower tier partnership), in which event the previously denied loss would be allocated to the electing ultimate partners to the extent of the amount now at risk in the lower-tier partnership (assuming no intervening changes in partnership interests).
A further alternative would entail inter alia allocating lower-tier losses to the partners of the upper-tier partnership.
Look-through of corporations (pp. 12-13)
S. 212.1(6)(b), which applies a look-through rule for the purpose of having s. 212.1 apply on a disposition by a partnership or trust is overly broad in that it looks through corporations. For example, when the non-resident seller (NRco) sells its interest in a partnership owning USco which owns Canco representing only 20% of the fair market value of the USco shares, s. 212.1 would appear to apply to the “sale” of the underlying Canco shares.
Frequent need for Canadian investors in umbrella funds to make the election (pp. 13-14)
Where foreign investment funds are structured as corporate umbrella funds (i.e., with each sub-fund of the corporation being a separate investment fund for commercial and regulatory purposes), it is quite possible that there would only be a few Canadian investors in a particular Canadian-dollar sub-fund (with the manager typically hedging the sub-fund’s non-Canadian assets back to the Canadian dollar), so that the Canadian investor’s shares may very well be tracking interests. Retail investors may be unaware of the s. 95(12) election.
Currency hedging may create separate tracking interests (p. 14)
A sub-fund may still be a controlled foreign affiliate to a Canadian investor who has made the s. 95(12) election if the sub-fund hedges its non-Canadian dollar exposure back to the Canadian dollar, as the Canadian dollar class or series will be seen as a separate tracked interest from the other interests in the sub-fund. Accordingly, such electing Canadian investors, holding a relatively small number of shares of the sub-fund, but more than 10% of the shares of the Canadian dollar class or series of the sub-fund, may be caught.