29 March 1994 External T.I. 9330455 - FLOW-THROUGH SHARE RENUNCIATION TO DECEASED SHAREHOLDER

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Is the estate of a deceased flow-through shareholder the same "person" as the deceased for the purpose of a 66(12.6) renunciation?

Position TAKEN:

The estate and the deceased are separate taxpayers and not the same person. Estate cannot receive renounced expense under flow-through share provisions where the deceased entered into the flow-through share agreement and gave the consideration for the shares.

Reasons FOR POSITION TAKEN:

Above mentioned provisions authorize expense to be renounced only to "the person" that gave consideration for the flow-through share under an agreement for the issue of the flow-through share.

XXXXXXXXXX 5-933045

Attention: XXXXXXXXXX

March 29, 1994

Dear Sirs:

Re: Renounced Expenses on Death

This is in reply to your letter dated October 19, 1993 wherein you requested our confirmation that a renunciation of qualifying expenses that were incurred following the date of death of the flow-through shareholder can be made after the shareholder's death.

Unless otherwise stated, all references to statute are to the Income Tax Act S.C. 1970-71-72,c.63 as amended, consolidated to June 10, 1993 (the "Act").

According to subsection 66(12.6) of the Act, a principal business corporation that has issued flow-through shares (the "Corporation"), may renounce qualified expenses to the person who has given consideration under an agreement for the issue of flow-through shares. The provision requires the expense to be renounced to the same person who entered into the agreement and paid consideration for the shares. Upon death, that person ceases to exist. We do not agree that the estate of the deceased shareholder can be construed as being the same person as the deceased.

According to subsection 66(12.7) of the Act, the Corporation is required to file Form T101 before the end of the first month following the month in which the renunciation is made. Thus, in order to make a renunciation effective before the shareholder's death, the renunciation must be filed in accordance with the requirements of subsection 66(12.7). Subsection 66(12.6) requires that the costs renounced must be incurred on or before the effective date of the renunciation. As a result, only costs incurred before the death of the shareholder may be renounced to the deceased shareholder. Costs incurred after the death of the shareholder will not qualify to be renounced to the shareholder.

In order for the Corporation to make a renunciation of qualifying expenses incurred following the death of the shareholder, a specific provision of the Act would be required to authorize the renunciation to the estate or a person other than the person that entered into the flow-through share agreement. In its present form, the Act does not include such authority. We will be bringing the matter to the attention of the Department of Finance for their consideration.

The foregoing comments represent our general views with respect to the subject matter referred to herein. As indicated in paragraph 21 of Information Circular 70-R2, the above comments do not constitute an advance income tax ruling and accordingly are not binding on the Department.

Yours truly,

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