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: Application of subsection 40(3.6) where a trust acquires some shares of a corporation from a deceased's estate and the remaining shares of the corporation held by the estate are redeemed. The estate and the trust have the same non-affiliated executors/trustees.
Position: Generally, the estate would not be considered to be affiliated with the corporation after the share redemption.
Reasons: The law.
XXXXXXXXXX 2002-015102
Michael Cooke
January 16, 2003
Dear XXXXXXXXXX:
Re: Subsection 40(3.6)
This is in reply to your letter of July 3, 2002 wherein you requested our comments on the application of subsection 40(3.6) of the Income Tax Act (the "Act"), as it may apply to the fact situation described in your letter.
In your letter, you indicate that an estate of a deceased individual acquired all the shares of a corporation that was controlled by the deceased individual immediately before his death. The estate has two executors who are not affiliated persons within the meaning of section 251.1. Pursuant to the terms of the deceased's will, a testamentary trust is to be established, the trustees of which are to be the same persons as the executors of the estate. The estate will transfer some of the shares of the corporation to the testamentary trust, following which the corporation will redeem the remaining shares of the corporation held by the estate. Immediately following the redemption, the testamentary trust will control the corporation. The redemption of the corporation's shares held by the estate will result in a capital loss to the estate, which, provided subsection 40(3.6) does not apply, will be applied, pursuant to subsection 164(6), against capital gains realized by the deceased.
You ask whether subsection 40(3.6) would apply to deny the estate's capital loss which would depend on whether, after the share redemption described above, the estate would be considered to be affiliated with the corporation.
Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 ("IC-70-6R5") dated May 29, 2002. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. We can, however, provide the following comments.
In the situation described, provided no single executor/trustee has de facto control over the corporation, the estate would ordinarily not be considered to be affiliated with the corporation after the redemption of all of the corporation's shares held by the estate.
The above comments represent our general views with respect to the subject matter of your letter and are provided in accordance with paragraph 22 of Information Circular 70-6R5.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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