26 August 2008 External T.I. 2008-0280781E5 - 128.1(1)(b) - Power of Appointment

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: Is there a deemed disposition of a general power of appointment held by a person on immigration?

Position: No.

Reasons: A power of appointment is not considered to be property in itself.

XXXXXXXXXX 									2008-028078

August 26, 2008

Dear XXXXXXXXXX :

Re: A General Power of Appointment Holder Becoming Resident in Canada

We are writing in reply to your letter of June 5, 2008 in which you requested our view as to whether there is a deemed disposition of property when a person who holds a general power of appointment over trust property which is not taxable Canadian property becomes resident in Canada. The trust is not resident in Canada for the purposes of the Income Tax Act (the "Act"). You also enquire how the Canada Revenue Agency ("CRA") values that power of appointment.

Our Comments

The particular circumstances outlined in your letter appear to relate to a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R5, Advance Income Tax Ruling, this Directorate does not comment on transactions involving specific taxpayers except by way of an advance income tax ruling in respect of proposed transactions. When the situation involves a past transaction or event and a specific taxpayer, the question should be directed to the appropriate Tax Services Office for their views, along with all relevant facts and documentation. However, we are prepared to offer the following general comments which may be of assistance.

It is the position of the CRA that a power of appointment is not property in itself and thus is not subject to the deemed disposition rules in subsection 70(5) of the Act. For the same reason, the deemed disposition rules in paragraph 128.1(1)(b) of the Act would not apply to a power of appointment that was held by a person immediately before he or she immigrates to Canada. However, a power of appointment in respect of property held by a trust may affect the value of any interest in that trust that is held by the person who holds the power of appointment. Where the power of appointment can be exercised in favour of the holder but the holder does not otherwise hold an interest in the trust, the holder would likely be considered to have a beneficial interest in the trust under paragraph 248(25)(b) of the Act. In such a case, the deemed disposition rules in paragraph 128.1(1)(b) of the Act would apply with respect to the interest in the trust of the holder/immigrant.

The valuation of an interest in a trust involves an analysis of all the relevant information relating to the circumstances of a particular situation (including, in this case, the terms of the power of appointment) and the exercise of judgment in determining the appropriate method of valuing such an interest. As a result, the CRA is unable to provide the method or confirm the validity of any particular valuation used in the determination of the fair market value of any such property. The cost of a holder's capital interest in a personal trust is determined under subsection 107(1.1) of the Act.

As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, the opinions expressed in this letter are not rulings and are consequently not binding on the CRA.

Yours truly,

Olli Laurikainen, C.A.
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch