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.
Principal Issues: Whether Mr. A is an "unrelated person" (within the meaning of paragraph 55(3.01)(a)) in respect of Bco.
Position: Yes.
Reasons: The law.
XXXXXXXXXX 1999-001103
Attention: XXXXXXXXXX
December 14, 2000
Dear Sirs:
Re: Unrelated Persons for the Purposes of Section 55
This is in reply to your letter of April 14, 1999 wherein you requested our opinion on the determination of whether a person who acquired a significant increase in interest in a corporation was an unrelated person for the purposes of paragraph 55(3)(a) of the Income Tax Act ("the Act").
The situation described in your letter may be briefly restated as follows:
1. Mr. A and Ms. X are the adult children of Mr. and Mrs. C (the "Parents").
2. Bco is a taxable Canadian corporation that owns all the shares of another taxable Canadian corporation ("Aco").
3. All the shares of Bco are held in a personal trust (the "Trust") created by the Parents for the benefit of Mr. A and Ms. X.
4. The trustees of the Trust are the Parents.
As part of a series of transactions that includes a dividend paid to Bco (the "dividend recipient") by Aco, Mr. A acquired all the shares of Aco. Your question is whether Mr. A would be an "unrelated person" within the meaning of paragraph 55(3.01)(a) in respect of Bco for the purposes of subparagraph 55(3)(a)(ii).
It is your view that the Parents form a related group that controls Bco such that they would be related to Bco pursuant to subparagraph 251(2)(b)(ii) of the Act. You believe that Mr. A would also be related to Bco pursuant to paragraph 251(2)(b)(iii) of the Act such that he would not be considered an unrelated person to Bco within the meaning of paragraph 55(3.01)(a). It is also your view that nothing in subparagraphs 55(5)(e)(ii) or (iii) changes this result.
Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R3 (IC-70-6R3) dated December 30, 1996. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. We can, however, provide the following general comments.
For the purposes of determining whether a person is an "unrelated person" within the meaning of paragraph 55(3.01)(a) in respect of a dividend recipient where a trust is involved it is necessary to consider the application of paragraph 55(5)(e). In our view, the provisions of subparagraphs 55(5)(e)(ii) and (iii) would suggest that for the purposes of section 55 of the Act, a reference to a trust should be a reference to the trust as a person and not the trustees personally. Moreover, the recent proposal in the June 5, 2000 Notice of Ways and Means Motion to amend subsection 104(1), in our view, merely clarifies that a reference to a trust in section 55(5) would be that of the trust arrangement itself and not the trustees.
In the above situation, Bco is a corporation controlled by the trust and would for the purposes of section 55, therefore, be related to the trust pursuant to subparagraph 55(5)(e)(iii). Since Mr. A is deemed pursuant to subparagraph 55(3)(e)(ii) and (iii) not to be related to the trust for the purposes of section 55 (i.e. because he is deemed not to be related to Ms. X who is a beneficiary of the trust), he would not be related to Bco which is controlled by the trust (i.e. for the purposes of subparagraph 251(2)(b)(iii) as it applies for the purposes of section 55, Mr. A would not be related to the person who controls Bco). Mr. A would, therefore, be an unrelated person in respect of Bco.
Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R3.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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