2001 Ruling 2000-0059963 - Disclaimer of Capital Interest

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: 1. Tax consequences of partial disclaimer of discretionary capital interest

Position: 1. Disclaiming beneficiary will not be considered to have received any proceeds of disposition for purposes of section 106 & 107; disclaimed interest will be considered to have been received "as a consequence of death for the purpose of 248(8); donation will qualify under 118.1; GAAR is not applicable.

Reasons: 1.disclaimer will be executed before acceptance of any part of interest being disclaimed; donation resulting from disclaimer within required time frame for purposes of recognition of donation on deceased's return.

XXXXXXXXXX 2000-005996

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling in respect of the income tax consequences arising from the proposed transactions described below. We also acknowledge your correspondence of XXXXXXXXXX. We understand that, to the best of your knowledge, and that of the taxpayers on whose behalf this ruling is requested, none of the issues contained in this advance income tax ruling are:

i) contained in earlier returns of the taxpayers or a related person;

ii) being considered by a tax service office and/or a tax centre in connection with a tax return previously filed by the taxpayers or a related person;

iii) under objection by the taxpayers or a related person except that you have filed a Notice of Objection to the Notice of Assessment to the final return of the XXXXXXXXXX solely for the purpose of having the Canada Customs and Revenue Agency ("CCRA") consider the implications of the proposed transaction that is the subject of this ruling request;

iv) before the courts; or

v) the subject of a ruling previously issued by the Directorate to the taxpayers or a related person.

Definitions

1. In this letter, unless otherwise indicated, all statute references are to the Canadian Income Tax Act and Regulations (R.S.C. 1985, 5th supplement, c.1 as amended) (the "Act"), and the following terms have the meaning specified:

(a) "Mr. X" means XXXXXXXXXX, deceased. The final return for the Late Mr. X was filed at the XXXXXXXXXX Tax Services Office under his Social Insurance Number XXXXXXXXXX ;

(b) " Estate Trustees" of the Estate of Mr. X mean XXXXXXXXXX ;

(c) "Beneficiary A" means XXXXXXXXXX who is the income beneficiary of the Residuary Estate of Mr. X (defined in paragraph 6 below); and

(d) "Charity B" means XXXXXXXXXX, a registered charity (CCRA Registration Number XXXXXXXXXX).

Facts

The relevant background facts can be summarized as follows:

2. Mr. X died on XXXXXXXXXX.

3. Mr. X died leaving a number of documents purporting to dispose of the assets of his estate.

4. Due to uncertainties in the documents, it was necessary to apply to the court for an order as to which documents comprised the will of the deceased and ought to be submitted for probate and, further, to provide clarification as to certain provisions of the will.

5. The court order was obtained on XXXXXXXXXX.

6. Paragraph XXXXXXXXXX of the court order provides as follows:

"XXXXXXXXXX."

7. Paragraph XXXXXXXXXX of the court order provides that:

"XXXXXXXXXX."

8. To date there has been no encroachment by the Estate Trustees on the capital of the Residuary Estate on Beneficiary A's behalf.

Proposed Transaction

9. Beneficiary A will execute a non-revocable disclaimer in respect of part of the interest he has as a beneficiary who might receive capital as a result of the Estate Trustees discretionary powers to encroach upon capital. Beneficiary A has sought and received independent legal advice in connection with the execution of this disclaimer. For example, assuming the Residuary Estate is $XXXXXXXXXX, Beneficiary A will execute a non-revocable disclaimer in respect of a percentage of the Residuary Estate ("x"). The wording, in part, of the proposed disclaimer follows:

"XXXXXXXXXX."

Purpose of Proposed Transaction

The purpose of the proposed transaction is to permit the fair market value of a portion of the Residuary Estate to be considered a charitable gift for income tax purposes. This will have the effect of reducing the income tax otherwise payable in the final income tax return of the late Mr. X. This is an acknowledgment by the Estate Trustees and Beneficiary A that, due to the quantum of the Residuary Estate, there will be no need for an encroachment on capital to the extent of such portion of the estate.

Rulings Given

Provided that the preceding statements are accurate and constitute complete disclosure of all relevant facts, proposed transaction and purpose thereof, the proposed transaction is carried out as herein described and the non-revocable disclaimer is legally effective, our advance income tax rulings are as follows:

A. Beneficiary A will not be considered to have received any proceeds of disposition for the purposes of sections 40 and 106 as a result of executing the disclaimer described in paragraph 9 above.

B. To the extent of the portion of the Residuary Estate on which Beneficiary A irrevocably disclaims his interest as a beneficiary who might receive capital as a result of the Estate Trustees discretionary powers to encroach upon capital, the fair market value of the equitable interest in this portion of the Residuary Estate will qualify as a charitable gift for purposes of subsections 118.1(1), (3) and (5).

C. Subsection 245(2) will not apply to re-determine the tax consequences of the above rulings as a result of the proposed transaction.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R4, Advance Income Tax Rulings, and are binding on the CCRA provided the disclaimer is executed on or before XXXXXXXXXX. These rulings are based on the Act in its present form and do not take into account the effects of any proposed amendments thereto.

Yours truly,

XXXXXXXXXX
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch