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.
Principal Issues: A unit trust will redeem its units and distribute all of its assets to a master trust, the unit trust's sole beneficiary, the unit trust shall cancel all of its units held by the master trust and the unit trust shall cease to exist. Will the unit trust be able to deduct, in accordance with paragraph 104(6)(b), the portion of any income or gains that become payable to the master trust? Will any income that is payable to the master trust from the unit trust be included in the income of the master trust pursuant to subsection 104(13)?
Position: Yes. Yes.
Reasons: In accordance with the relevant provisions of the Act. Before we could provide the 104(13) and 104(6)(b) rulings, we received confirmation from the taxpayer's representative that the unit trust had never made a subsection 107(2.11) election and that, in accordance with the relevant terms of the trust agreement, the unit trust in fact made payable realized gains to the Master Trust and that the Master Trust had the right to enforce such payment.
XXXXXXXXXX 2005-015112
XXXXXXXXXX, 2006
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Corporation")
Business Number: XXXXXXXXXX
This letter is in reply to your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-referenced Corporation XXXXXXXXXX and further to your e-mails sent to us on XXXXXXXXXX and numerous telephone conversations (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the above-referenced taxpayer, none of the issues involved in the ruling request is:
(i) in an earlier return of the Corporation or a related person;
(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation or a related person;
(iii) under objection by the Corporation or a related person;
(iv) before the courts; nor,
(v) the subject of a ruling previously issued by the Directorate, with the exception of the Ruling.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Definitions
For the purposes of this ruling, the following terms have the meanings specified:
"CRA" means the Canada Revenue Agency;
"Foreign Property" means foreign property as previously defined in subsection 206(1) of the Act, and which was previously applicable for the purposes of subsection 206(2) of the Act.
The relevant facts, proposed transaction and the purpose of the proposed transaction are as follows:
Facts
1. The Corporation, XXXXXXXXXX non-share capital corporation controlled by the XXXXXXXXXX (the "Entity"), is responsible for the management of assets XXXXXXXXXX.
2. The Entity entered into an agreement with the XXXXXXXXXX (the "Prior Trustee") dated XXXXXXXXXX, for the purposes of establishing a master trust fund known as the XXXXXXXXXX (the "Master Trust").
3. The Prior Trustee was terminated as a trustee effective XXXXXXXXXX, and was replaced by XXXXXXXXXX (the "Trustee") as of that date. Also on that date, the Trustee and the Entity agreed to amend and restate the agreement dated XXXXXXXXXX that established the Master Trust (the Amended and Restated Master Trust Agreement, or, the "Trust Agreement").
4. The Entity continued the Master Trust for the purposes of facilitating the collective investment and administration of any portion of the assets of those plans that have been approved by the Entity to participate in the Master Trust. The Corporation is responsible for the management of the assets held in the Master Trust. The plans are as follows:
i) XXXXXXXXXX; and
ii) XXXXXXXXXX.
5. The membership in both plans as of XXXXXXXXXX, was as follows:
XXXXXXX XXXXXXX XXXXXXX
Active members XXXXXXXX XXXXXXXX XXXXXXXX
Retired XXXXXXXX XXXXXXXX XXXXXXXX
Terminated Vested XXXXXXXX XXXXXXXX XXXXXXXX
Suspended, exempt XXXXXXXX XXXXXXXX XXXXXXXX
or pending status
6. XXXXXXXXXX.
7. The Master Trust constitutes a master trust for the purposes of paragraph 149(1)(o.4) of the Act, as the Master Trust has elected to be such in accordance with such paragraph and satisfies the requirements prescribed in subsection 4802(1.1) of the Income Tax Regulations (the "Regulations").
8. Pursuant to the Ruling, the following transactions were implemented:
i) A new trust, XXXXXXXXXX ("New Trust"), was created with the same general terms and conditions as the Master Trust, but with the sole beneficiary being the Master Trust. The New Trust is a unit trust as defined in subsection 108(2c) of the Act.
ii) The Trustee transferred certain assets from the Master Trust to the New Trust. In return, the New Trust issued to the Master Trust identical units of beneficial interest in the New Trust with the fair market value of the units issued being equivalent to the fair market value of the assets transferred to the New Trust by the Master Trust.
9. The purpose of the aforementioned transactions was to segregate certain assets of the Master Trust, to enable suitable diversification of investments including the ability to increase the percentage of underlying foreign investments.
10. The assets of the Master Trust consist of units of the New Trust, cash, marketable securities, and investments in limited partnerships with other investors. The assets of the New Trust are cash and marketable securities.
11. The New Trust has, from time to time, allocated and made payable net realized gains to the Master Trust and the Master Trust has the right to enforce such payment.
12. The New Trust has never made an election in accordance with subsection 107(2.11) of the Act.
Proposed Transaction
13. The New Trust will redeem all of its units held by the Master Trust by means of a distribution to the Master Trust of all of the assets of the New Trust. Once all of the assets of the New Trust have been so distributed, all units of the New Trust previously held by the Master Trust shall be cancelled and the New Trust shall cease to exist.
Purpose of the Proposed Transaction
14. As a result of the repeal of the Foreign Property rules contained in Part XI of the Act, as announced in the February 23, 2005, Notice of Ways and Means Motion, and enacted by 2005, c.30, s.14, a two level trust structure to increase the percentage of underlying foreign investments is no longer necessary.
Rulings
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transaction and purpose of the proposed transaction, and provided that the proposed transaction is as described above, we rule as follows:
A. To the extent that any capital gain is realized by the New Trust on the distribution of assets to the Master Trust, as described in 13 above, the New Trust shall be entitled to deduct from its income for a taxation year, pursuant to paragraph 104(6)(b) of the Act, the taxable portion of any capital gain that is payable in the taxation year to the Master Trust.
B. Pursuant to subsection 104(13) of the Act, the taxable portion of any capital gain that was payable to the Master Trust in the taxation year, as a result of the distribution of assets as described in 13 above, will be included in computing the Master Trust's income for the year.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the CRA provided that the proposed transactions are completed by XXXXXXXXXX.
Yours truly,
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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