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 the non-taxable portion of a trust's capital gains can be added to a corporate beneficiary's CDA where the trust allocates a portion of its net taxable capital gains to the beneficiary pursuant to subsection 104(21).
Position: No.
Reasons: As per E9524995 and questions 7 and 20 at the 1999 APFF conference. The beneficiary is deemed for purposes of sections 3 and 111 (except as they apply for purposes of section 110.6) to have a taxable capital gain, but the beneficiary is not deemed to have a capital gain and it cannot otherwise be determined that the beneficiary has a capital gain.
2000-001876
XXXXXXXXXX J.D. Brooks
(613) 957-2103
Attention: XXXXXXXXXX
May 15, 2000
Dear Sir:
This is in reply to your letter of March 1, 1999 which was addressed to our Edmonton Tax Services Office and forwarded to us April 5, 2000. You requested our views on the effect on a corporation's capital dividend account where the corporation is allocated capital gains from a mutual fund trust. You referred to our document #9524995 and stated that it appears that such a corporation would not be entitled to add the untaxed portion of the capital gain to its capital dividend account. We apologize for the delay in replying.
In our opinion, where a trust designates pursuant to subsection 104(21) of the Income Tax Act a portion of its net taxable capital gains to a beneficiary that is a corporation, the beneficiary will not be deemed to have realized any capital gains and thus the corporate beneficiary will not be able to add the untaxed portion of the capital gain to its capital dividend account. As stated in our document #9524995 to which you referred, we have previously raised this point with the Department of Finance.
This issue was also recently addressed in questions 7 and 20 at the 1999 APFF (Association de planification fiscale et financière) conference. In responding to these questions, the Department of Finance stated that they agree with our interpretation and they are examining this and related issues to determine whether it would be appropriate to amend the Act.
Yours truly,
T. Murphy
Manager
Trusts Section
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
c.c. Barrie J. Wickware
Edmonton TSO
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