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: Various issues on the application of subsection 164(6) of the Act.
Position: General comments provided.
Reasons: Question of fact and wording of the Act.
XXXXXXXXXX 2002-013006
Fouad Daaboul
January 21, 2003
Dear XXXXXXXXXX:
Re: The application of subsection 164(6) of the Income Tax Act
This is in reply to your letter of March 15, 2002, in which you ask us five questions concerning the above-noted provision. We have restated some questions to reflect our understanding of the questions or issues raised.
Question 1
You ask us to confirm that subsection 164(6) of the Income Tax Act (the "Act") does not apply to trusts that crystallize out of the full administration of an estate, but was instead worded to apply only to estates that are in the midst of administration within the common law executor's year immediately following death.
As stated in the preamble to subsection 164(6) of the Act, the provision only applies where the legal representative of a deceased taxpayer disposes of property of his estate within the first taxation year of the estate in the course of administering the said estate of the deceased taxpayer. The term "administering" is not defined in the Act and accordingly, it is given its ordinary meaning for the context in which it is used. We can therefore confirm your views in this regard.
Question 2
You ask whether the term "administering" in subsection 164(6) of the Act includes transfers to beneficiaries in specie prior to the provision for the debt that an estate may have?
Whether any particular transfer to a beneficiary would be considered to occur in the course of administering the estate is a question of fact. It would seem that an in specie transfer could be regarded as occurring in the ordinary course of the administration of an estate for the purposes of subsection 164(6) of the Act. However, all the circumstances surrounding any particular transfer would have to be examined before any definitive statement could be made in this regard.
Question 3
What are the criteria that the CCRA will recognize in determining whether an estate has become a trust thus disqualifying the application of the provision?
The CCRA has not developed any criteria in this regard. It is a question of facts as to whether an estate has been wound up or not.
Question 4
Will the provisions of subsection 164(6) of the Act apply in respect of dispositions of estate property to parties that are otherwise beneficiaries in their own right under the estate but have instead other defined interests that would not allow them to gain the ownership of the property through the course of an estate law?
It does not seem possible to answer your hypothetical question with the limited facts provided. We are not clear as to what circumstances would give rise to a disposition of the property of an estate to a beneficiary without a corresponding acquisition of the ownership of that property by the beneficiary. In order for subsection 164(6) of the Act to apply, a disposition must occur in the course of administering the estate within the first taxation year of the estate. Whether such a disposition occurs or not in any particular situation is a question of fact. If you have concerns with respect to a specific situation, you may wish to approach your local tax services office with all of the relevant facts.
Question 5
You ask whether subsection 164(6) of the Act would apply in respect of a deemed disposition under subsection 128.1(4) or subsequent to a distribution under subsection 107(2)?
As noted earlier, whether any particular disposition of property by a legal representative is in the ordinary course of administering the estate or not is a question of fact. However, we doubt that a deemed disposition of property pursuant to subsection 128.1(4) of the Act could be regarded as such. However, it seems that a distribution under subsection 107(2) could very well qualify for the purposes of subsection 164(6) as a disposition in the ordinary course of administering the estate.
We trust our comments will be of assistance.
Yours truly,
Alain Godin
Manager
for Division Director
International and Trusts Section
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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