31 May 1985 Income Tax Severed Letter A-0947 - [Subsection 107(5) - Taxable Canadian Property]

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.

A.G. Thornley

Attention: XXXX

May 31, 1985

Dear Sirs:

Re: Subsection 107(5) - Taxable Canadian Property

This is in reply to your letter of January 8, 1985.

You request our views with respect to the meaning of "taxable Canadian property" in the context of a distribution by a resident trust to a non- resident beneficiary of shares which were acquired by the trust in an exchange to which section 85.1 of the Act applied. You suggest that, if the particular shares were acquired in exchange for shares which represented 25% or more of the issued shares of a class of capital stock of a "public corporation" such shares would constitute taxable Canadian property to the trust by virtue of paragraph 85.1(1) and subparagraph 115(1)(b)(ix) of the Act.

We do not agree. You point out, the general scheme of the Act contemplates the ownership of taxable Canadian property with reference to non-residents (e.g. in paragraph 48(1)(a) of the Act which refers to "... any property ... that would be taxable Canadian property if at no time in the year he had been resident in Canada ...). Similar wording is found in subsection 107(5), and subparagraph 108(1)(d.1)(ii) of the Act. In this context, we do not agree that paragraph 133(1)(c) of the Act contemplates the ownership of taxable Canadian property by a resident of Canada. It clearly contemplates two situations, the one to which you refer contemplates a corporation not resident in Canada (presumably a pre-April 26, 1985 incorporation).

The provisions of subsection 107(3) of the Act, like the provisions of subsection 48(1) of the Act, permit the deferral of the recognition of the gain or loss on the disposition (or deemed disposition) in respect of property that, when ultimately disposed of will normally be recognised for Canadian tax purposes (subject to applicable treaty protection). In this regard, we are therefore also of the view that the shares, which you describe, would not be considered taxable Canadian property in the hands of the non-resident beneficiary merely because they were acquired by the trust as described above.

Yours truly,

for Director Non-Corporate Rulings Division

s. 85.1 ss. 107(5) paras. 48(1)(a) & 133(1)(c) subpara 115(1)(b)(ix) & 108(1)(d.1)(ii)