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.
922066
24(1) Glen Thornley
(613) 957-2101
Attention: 19(1)
October 28, 1992
Dear Sirs:
Re: Subsection 110.6(7) of the Income Tax Act (the "Act")
This is in reply to your letter of June 30, 1992 requesting an interpretive opinion on the hypothetical facts and issues described in your letter. In brief, a testamentary trust proposes to transfer land that it holds as capital property to a taxable Canadian controlled private corporation for nil consideration. Paragraph 69(1)(b), however, will deem the trust to have received fair market value for the property which will ultimately result in the respective beneficiaries of the trust receiving capital gains upon which the beneficiaries will claim the capital gains exemption to the extent available. You are concerned that subsection 110.6(7) of the Act will deny the beneficiaries such capital gains deductions because no consideration is to be paid for the property in question.
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
The example which you set out is quite specific and it appears that it may relate to particular contemplated transactions. Assurance as to the tax consequences of contemplated transactions can only be given in response to a request for an advance income tax ruling. The procedure for requesting an advance income tax ruling is outlined in Information Circular 70-6R2, published by Revenue Canada, Taxation on September 28, 1990. If you wish to obtain binding commitment with respect to an actual case with facts similar to your example, an advance income tax ruling application should be submitted.
Although we are unable to provide any binding assurance with respect to the queries you have raised, we do provide the following general comments for your information.
Our Comments
Subsection 110.6(7) of the Act may apply, depending on the facts of a particular situation, to deny a capital gains deduction claimed by an individual (for instance the beneficiary of a trust) in respect of the capital gain realized as a result of the application of paragraph 69(1)(b) of the Act in a situation where a corporation acquires a property for consideration that is significantly less than the fair market value of the property at the time of acquisition. This is so, notwithstanding that the vendor is deemed by paragraph 69(1)(b) to have disposed of the property for proceeds of disposition equal to its fair market value.
Subsection 110.6(7) quite clearly denies a capital gains deduction to an individual where that individual has a capital gain from the disposition of property as part of a series of transactions in which any property is acquired by a corporation for consideration that is significantly less than the fair market value of the property at the time of acquisition. Even though paragraph 69(1)(b) of the Act deems a taxpayer to have received proceeds of disposition equal to fair market value where the taxpayer disposes of property for no proceeds in a non-arm's length situation, property that was factually acquired for no consideration, that is, consideration significantly less than the fair market value of the property at the time of the transaction, will trigger the consequences of subsection 110.6(7) of the Act under which the capital gains deduction will be denied.
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
We trust our comments will be of assistance to you.
Yours truly,
E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1992
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1992
Email this Content