22 July 1992 Income Tax Severed Letter 9209665 - Deemed Realization Rule

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.

920966
24(1) Marc Vanasse
(613) 957-8953

Attention: 19(1)

July 22, 1992

Dear Sirs:

Re: Application of Subsection 104(4) of the Income Tax Act (the "Act") Your letter dated March 9, 1992 addressed to Mr. Fitz-Clarke of the Vancouver District Office has been forwarded to this Directorate for our reply. In this letter you requested the Department's views as to the applicability of subsection 104(4) of the Act as it pertains to a non-resident discretionary trust which holds, as its only asset, a controlling interest in a foreign corporation.

The particular circumstances outlined in your letter on which you have asked our views appear to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R2, it is not the Department's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Taxpayers seriously contemplating a proposed transaction are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the Vancouver District Office for their views. In the absence of performing a thorough

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review of all facts and documentation, we are not in a position to give you a definitive response to your enquiry. However, we can offer you the following general comments which may be of some assistance. In general, we agree with your interpretation of the Act except for your comment pertaining to clause 94(1)(c)(i)(B) of the Act. With respect to the facts described in your letter, it is our opinion that the non- resident discretionary trust would be taxable on a gain arising from the deemed disposition of trust property under subsection 104(4) of the Act where the property owned by the trust would not qualify as excluded property as this term is defined in paragraph 95(1)(a.1) of the Act.

Furthermore, we do not agree with your statement that, as the trust is considered as a non-resident corporation for purposes of the foreign accrual property income ("FAPI") calculation in clause 94(1)(c)(i)(B) of the Act, subsection 104(4) of the Act cannot apply since this subsection applies only to trusts.

Subparagraph 94(1)(c)(i) of the Act deems the non-resident discretionary trust to be a person resident in Canada under Part I of the Act. It is only for purposes of computing the trust's taxable income (as being the aggregate of clauses 94(1)(c)(i)(A), (B) and (C) of the Act) does the Act refer (in clause B) to the amount that would be the FAPI of the trust if the trust were treated as a non-resident corporation. It is our opinion that clause 94(1)(c)(i)(B) of the Act does not in any way render the non-resident discretionary trust a non-resident corporation thus excluding it from the provisions of subsection 104(4) of the Act.

Yours truly,

for Acting Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

cc. Mr. John C. Fitz-Clarke
Vancouver District Office
Technical Business Enquiries

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