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:
The implications of certain transactions to the "exempt capital gains balance" ("ECGB") of an individual in respect of a mutual fund corporation.
Position TAKEN:
General comments on ECGB provided.
Reasons FOR POSITION TAKEN:
Insufficient and unclear information provided as to the structure of the mutual fund corporation and the transactions which have occurred.
XXXXXXXXXX 1999-001136
M. Azzi
Attention: XXXXXXXXXX
April 20, 2000
Dear Sirs:
Re: Exempt Capital Gains Balance ("ECGB")
This is in reply to your letter of June 8, 1999, which was forwarded to us for reply by the Burnaby-Fraser Tax Services Office. Your enquiry relates to the implications of certain transactions to the ECGB of an individual in respect of a mutual fund corporation. We apologize for the delay in responding to your request.
Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. Nonetheless, based on the information provided in your letter, we would also note that the assistance we could provide is limited, as the structure of the mutual fund corporation and the transactions which have occurred are unclear. Accordingly, we provide the following general comments which may be of assistance.
As you may know, the capital gain recognized by an individual, as a result of an election under subsection 110.6(19) of the Income Tax Act (the "Act"), on an interest in or a share of the capital stock of a "flow-through entity" (as defined in subsection 39.1(1) of the Act and which includes a mutual fund corporation in paragraph (c) of that definition) was credited to an account defined in subsection 39.1(1) of the Act as the ECGB of the individual in respect of the entity. Claims may be made against this account to reduce capital gains that are flowed out to the individual by the entity for taxation years that end before 2005 and to reduce capital gains realized by the individual on dispositions of interests in or shares of the entity for those years.
Where at any time an individual disposes of all of his or her holdings in a flow-through entity, subsection 39.1(7) of the Act deems the ECGB in respect of that entity to be nil for each taxation year that begins after that time. However, in general terms, where an individual has, before 2005, disposed of all of his or her holdings in a flow-through entity described in any of paragraphs (a) to (f) of the definition of "flow-through entity" in subsection 39.1(1) of the Act, paragraph 53(1)(r) of the Act provides a mechanism to increase the individual's adjusted cost base ("ACB") of each interest in or share of the entity, immediately before the disposition, by a pro rata portion of the amount of the individual's unused ECGB (e.g., in the case of a mutual fund corporation, the ECGB for the year less any current year capital gains reductions as a consequence of subsection 39.1(2) or (6) of the Act) in respect of the entity. On the other hand, if, at the end of 2004, an individual still holds an interest in or share of a flow-through entity and has not used up his or her ECGB in respect of the entity, the unused portion will thereafter be added to the ACB of the individual's remaining interests in or shares of the entity, pursuant to paragraph 53(1)(p) of the Act.
We trust that these comments will be of assistance.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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