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: Determine the date of acquisition and the adjusted cost base of a portfolio investment transferred to a Canadian resident beneficiary by a US testamentary trust.
Position: The adjusted cost base of property transferred by a trust to one of its beneficiaries in satisfaction of such beneficiary' capital interest in the trust is to be determined in accordance with subdivisions 107(1) et (2).
Reasons: Subsections 107(1) and (2) and documents E 9629257, E 9824473 and E 9204205.
XXXXXXXXXX 2000-005269
Éric Allard-Pouliot
February 14, 2001
Dear XXXXXXXXXX:
Re: Technical Interpretation Request: Trust - Acquisition Date
This is in reply to your facsimile of October 24, 2000 regarding the above-noted subject. More specifically, you have requested our opinion as to the date of acquisition for capital gains tax purposes of an investment portfolio transferred to one of your clients, a Canadian resident, by a US testamentary trust.
In your request, you mention that a US testamentary trust was created at the death of your client's uncle in XXXXXXXXXX. The testator of the said trust was a US citizen and a US resident. The trustee was directed, under the terms of the trust, to distribute the net income of the trust to the testator's sister-in-law, a UK resident. The funds remaining in the trust at the time of the sister-in-law's death were to be distributed to your client.
According to your request, the sister-in-law died on XXXXXXXXXX. However, the funds remained in the trust until XXXXXXXXXX, at which time the trust was wound up and the capital of the trust was transferred into an investment account in the name of your client.
The particular circumstances in your letter on which you have asked for our views refer to a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R4, it is not the Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to offer the following general comments which may be of assistance to you.
Having regard to the facts outlined in your request, it seems that the portfolio investment was acquired by your client on the date the trust was wound up and the capital of the trust was transferred to your client. Such a transfer would constitute, for the purposes of the Income Tax Act (the "Act"), a distribution of a trust's properties to one of its beneficiaries in satisfaction of such beneficiary's capital interest in the trust. In such a case, the beneficiary would be deemed to have disposed of its capital interest in the trust and to have acquired the property or properties distributed to him by the trust in satisfaction of his capital interest.
Where such a distribution is made by a personal trust (pursuant to subsection 248(1), a testamentary trust, whether resident in Canada or not, constitutes a "personal trust" for the purposes of the Act), the rules found under subsections 107(1) and (2) will apply in order to determine: (a) the adjusted cost base and the proceeds of disposition of the capital interest in the trust disposed of by the beneficiary; and (b) the cost of the property or properties acquired by the trust's beneficiary in satisfaction of his capital interest in the trust.
Pursuant to paragraph 107(1)(a), the adjusted cost base to a taxpayer of his capital interest in the trust which has been disposed of by him is deemed to be the greater of (i) the adjusted cost base of the interest as otherwise determined and (ii) the amount by which the cost amount of the capital interest exceeds the amount, if any, deducted under paragraph 53(2)(g.1) in computing the adjusted cost base of the capital interest. The cost amount of a taxpayer's capital interest in a trust (other than a trust that is a foreign affiliate of the taxpayer) satisfied by way of a distribution is equal, pursuant to subsection 108(1), to the money so distributed by the trust or, where the capital interest is satisfied by way of a distribution of properties other than money, to the sum of the cost amounts to the trust of those properties. This is subject to subsection 107(1.1) , which deems the cost of a capital interest in a trust to be nil. Therefore, in most situations the adjusted cost base to a taxpayer of a capital interest in a trust will be equal to the cost of the properties distributed to him in satisfaction of his capital interest in the trust. The cost amount mechanism in paragraph 107(1)(a) generally allows the flow through from a personal trust to a beneficiary of trust capital without adverse tax consequences.
In accordance with paragraph 107(2)(c), the beneficiary is deemed to have disposed of his capital interest in the trust for proceeds equal to the cost at which he is deemed by paragraph 107(2)(b) to have acquired the property or properties distributed to him, minus any debt or other legal obligations assumed by him. With respect to the cost of any property acquired by the beneficiary upon the distribution of the trust's properties, paragraph 107(2)(b) provides that the beneficiary is deemed to have acquired the property at a cost equal to the total of its cost amount to the trust and the amount, if any, by which the adjusted cost base of the beneficiary's capital interest in the trust exceeds the cost amount of his capital interest.
In light of the facts submitted in your request, it would appear that on XXXXXXXXXX, your client disposed of his/her capital interest in the US testamentary trust and acquired the investment portfolio. The cost of this investment portfolio to your client would generally correspond to the cost of the said portfolio to the trust immediately before its distribution to your client.
The above comments are an expression of opinion only and are not binding on the Canada Customs and Revenue Agency, as explained in paragraph 22 of Information Circular 70-6R4. We trust that the foregoing will be of assistance to you.
Yours truly,
Alain Godin
Manager
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content