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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: (1) Tax consequences on a distribution of taxable Canadian property by a Canadian resident trust to a non-resident beneficiary where the trust makes an election under 107(2.11) and there are no other beneficiaries of the trust. Specifically, whether there will be tax payable under Parts XII.2 and Part XIII. (2) Postponement of payment of taxes owing by the trust.
Position: (1) There will be no tax payable under Parts XII.2 and Part XIII with respect to the taxable capital gain that is the subject of the election. (2) Taxes may be postponed.
Reasons: (1) If the taxable capital gain is included in the trust's income, there is no 104(6) deduction to the trust and no potential 104(13) inclusion to the beneficiary. (2) Postponement of taxes is provided for in subsection 220(4.6).
XXXXXXXXXX 2001-011574
December 27, 2001
Dear Sirs:
Re: Distribution of Property to a Non-Resident Beneficiary
We are writing in reply to your letter of December 19, 2001, concerning the tax consequences of a distribution of taxable Canadian property by a Canadian resident trust to a non-resident beneficiary in the following hypothetical fact situation:
1. The trust (the "Trust") is a "personal trust (as that term is defined in subsection 248(1) of the Income Tax Act (the "Act")).
2. The Trust is a resident of Canada and will continue to be a resident in Canada at the time of the distribution in 5 below.
3. The sole income and capital beneficiary of the Trust ("Mr. X") is a non-resident of Canada and has been a non-resident of Canada continuously since 1995.
4. The Trust holds certain assets, including shares of a Canadian-resident private corporation, which are "taxable Canadian property" (as defined in subsection 248(1) of the Act).
5. The Trust distributes the taxable Canadian property (the "TCP") to Mr. X in satisfaction of part of his capital interest in the Trust.
6. The Trust elects under subsection 107(2.11) of the Act in prescribed form filed with the Trust's return for the year or preceding year with respect to the distribution in 5 above to compute its income for purposes of subsections 104(6) and (13) without regard to that distribution.
7. The Trust elects in prescribed manner on or before the Trust's balance due date for the year of the distribution that subsection 220(4.6) and subsections 220(4.61) to (4.63) apply to the distribution.
The particular circumstances outlined in your letter appear to relate to a factual situation involving specific taxpayers and as such should be the subject of an advance income tax ruling request as outlined in Information Circular 70-6R4 (the "Circular"). However, we offer the following general comments, which may be of assistance to you.
Pursuant to subsection 107(5) of the Act, the distribution by the Trust to Mr. X is subject to subsection 107(2.1) of the Act. As such, the Trust is deemed to dispose of the TCP for proceeds equal to its fair market value at that time. If the Trust elects as described in 6 above, the taxable capital gain arising on the distribution will be included in the Trust's income under Part I of the Act and, consequently, with respect to that taxable capital gain, there will be no tax payable by the Trust under Part XII.2 of the Act and no tax payable by Mr. X under Part XIII of the Act.
Provided the Trust remains in existence, it may elect in prescribed manner on or before the Trust's balance-due date for the year of the distribution in 5 above (the "distribution year") that subsections 220(4.6) and (4.61) to (4.63) apply in respect of the distribution year. If the Trust so elects and adequate security is provided to the Minister of National Revenue by or on behalf of the Trust on or before the Trust's balance-due date for the distribution year and such adequate security is maintained in subsequent years, then the payment of tax owing by the Trust under Part I of the Act, as a result of the distribution of the TCP to Mr. X and the making of the election under subsection 107(2.11), is deferred.
Our comments are provided in accordance with paragraph 22 of the Circular.
Yours truly,
Theresa Murphy
Manager
Trusts Section
International and Trusts Division
Income Tax Rulings Directorate
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