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: Whether the shares of a corporation owned by a discretionary trust are deemed to be owned by a beneficiary under subparagraph 256(1.2)(f)(ii).
Reasons: The law. An amendment to the Act would be required to find otherwise.
January 6, 2004
Re: Subparagraph 256(1.2)(f)(ii)
This is in reply to your letter of December 4, 2003 wherein you requested our comments with respect to the above provision of the Income Tax Act (the "Act") as it applies to the fact situation described in your letter.
The facts in your letter are briefly restated as follows:
Mr. A, a Canadian resident individual, is a beneficiary of a discretionary inter vivos personal trust (the "Trust") that is also resident in Canada. Mr. A is not a trustee or settlor of the Trust. The Trust owns all the issued and outstanding shares of a Canadian-controlled private corporation ("Opco"). Mr. A owns all the issued and outstanding shares of another Canadian controlled private corporation ("Aco"). Notwithstanding the discretionary nature of the Trust, the terms of the Trust deed stipulate that no beneficiary can receive, own, or otherwise have the use or benefit from more than 24% of the accumulating income or the capital from the shares of Opco.
Assuming that Opco and Aco would not, but for the following issue, otherwise be associated, you ask whether Mr. A would be considered to own all the shares of Opco pursuant to subparagraph 256(1.2)(f)(ii) of the Act for the purposes of "the association rules".
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 dated May 17, 2002 ("IC 70-6R5"). However, if the situation relates to a completed transaction a request for the Canada Revenue Agency's ("CRA") views must be made to your local Tax Services Office. We can, however, provide the following comments.
Subparagraph 256(1.2)(f)(ii) provides that where any beneficiary's share of income or capital of a trust is subject to any discretionary power, such beneficiary is deemed to own all the shares of any corporation that are held by the particular trust. Accordingly, in the situation described above, Mr. A would be deemed to own all the shares of Opco that are owned by the Trust for the purposes described in subsection 256(1.2).
We trust that our comments will be of assistance to you. However, as stated in paragraph 22 of Information Circular 70-6R5, the opinion expressed in this letter is not a ruling and consequently is not binding on the CCRA.
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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