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.
This is in reply to your letter dated September 30, 1993 with respect to the application of section 256 of the Income Tax Act (the "Act") in the situation where 16% of the shares of a corporation are held by a discretionary family trust and the three beneficiaries of the trust (being brothers and sisters of each other) are under the age of 18.
You have requested confirmation that the application of subparagraph 256(1.2)(f)(ii) of the Act and subsection 256(1.3) of the Act would not result in the "double-counting" of the shares held by the trust in the determination of the number of shares held by the parent for the purposes of section 256 of the Act. Even though subparagraph 256(1.2)(f)(ii) of the Act would deem each beneficiary to own the shares held by the trust for purposes of subsections 256(1) to (5) of the Act, you believe that the application of subsection 256(1.3) of the Act would not result in the parent being deemed to own 48% (16% of the shares times 3 beneficiaries) of the shares of the corporation.
Section 256 of the Act establishes certain rules for determining whether corporations are to be considered associated for purposes of the Act. Subparagraph 256(1.2)(f)(ii) of the Act provides for a "look through" whereby shares of a corporation that are held by a trust are deemed to be held by the beneficiaries of the trust. The result of the application of subparagraph 256(1.2)(f)(ii) of the Act is that more than one person can be deemed to own the same shares at the same time.
We are of the view that the application of the provisions of subparagraph 256(1.2)(f)(ii) of the Act and subsection 256(1.3) of the Act would be considered from the point of view of each of the beneficiaries, on a person by person basis, with the result that the shares of the corporation would not be "double-counted" in any particular situation. This position is consistent with the Department's response to Question 14 at the 1989 Revenue Canada Round Table. We also refer you to paragraphs 28 to 30 of Interpretation Bulletin IT-64R3, dated March 9, 1992, wherein two examples are given to illustrate the interaction of paragraph 256(1.2)(f) of the Act and subsection 256(1.3) of the Act.
These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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