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: Will "double-counting" occur under subparagraph 256(1.2)(f)(ii) and subsection 256(1.3) in a situation where a father is the sole trustee of a trust, the beneficiaries of which are his children?
Position: No "double-counting".
Reasons: Position taken in 1989 Round Table Q.14 and various interpretation letters.
XXXXXXXXXX Karen Power, CA
October 13, 2000
Dear XXXXXXXXXX :
Re: Subparagraph 256(1.2)(f)(ii) and Subsection 256(1.3) of the Income Tax Act
We are writing in reply to your letter of July 21, 2000, wherein you requested our comments on the application of subparagraph 256(1.2)(f)(ii) and subsection 256(1.3) of the Income Tax Act (the "Act") in the following hypothetical situation.
One parent, the Father, owns 100% of the shares of A Ltd. and his wife (Mother) owns 76% of the issued shares of B Ltd. The balance of the issued shares of B Ltd., namely 24%, are held by a discretionary trust. Father is the sole trustee, and neither Father nor Mother are beneficiaries of the trust. The beneficiaries of the discretionary trust are children of Mother and Father who are under 17 years of age and who are not involved in managing the business of B Ltd. You have indicated, that as trustee, Father holds legal title to the 24% of the issued shares of B Ltd. which are held by the trust.
You have asked whether the effects of the above noted provisions would result in Father being deemed to own 48% of the shares of B Ltd.?
The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. The review of such situations is the responsibility of the Taxation Services Offices and it is the practice of the Canada Customs and Revenue Agency not to comment on such transactions when the identities of the taxpayers are not known. We can, however, provide you with the following general comments which we hope will be of assistance.
Section 256 of the Act establishes certain rules for determining whether corporations are to be considered associated for purposes of the Act. Subparagraph 256(1.2)(f)(ii) of the Act provides for a "look through" whereby shares of a corporation that are held by a trust are deemed to be held by the beneficiaries of the trust. The result of the application of subparagraph 256(1.2)(f)(ii) of the Act is that more than one person can be deemed to own the same shares at the same time.
We are of the view that the application of the provisions of subparagraph 256(1.2)(f)(ii) of the Act and subsection 256(1.3) of the Act would be considered from the point of view of each of the beneficiaries, on a person by person basis, with the result that the shares of the corporation would not be "double-counted" in any particular situation. This position is consistent with the Agency's response to Question 14 at the 1989 Revenue Canada Round Table. As a result of this position, subsection 256(1.3) of the Act would not result in Father being deemed to own 48% of the shares of B Ltd. However, in such a situation, subsections 256(2.1) or 256(5.1) may apply to deem A Ltd. and B Ltd. to be associated.
We trust our comments will be of assistance to you. However, as noted in Information Circular 70-6R3 issued on December 30, 1996, the above comments are not binding on the Canada Customs and Revenue Agency.
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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