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.
940584
XXXXXXXXXX L. Holloway
Attention: XXXXXXXXXX
June 14, 1994
Dear Sirs:
Re: Technical Interpretation Request - Subsection 75(2)
This is in reply to your letter of March 3, 1994, requesting a technical interpretation on the application of subsection 75(2) of the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993, in the situation outlined in the following paragraph.
A trust purchases a piece of property from an arm's length person (the "vendor") in exchange for a mortgage. The mortgage is for a period of one year during which time if the payments are not made according to the terms of the mortgage, the property is taken back by the vendor. The mortgage also restricts the ability of the trust to sell the property during the one year term of the mortgage without the consent of the vendor.
The scenario you have described appears to reflect an actual fact situation, and as stated in paragraph 21 of Information Circular 70-6R2, we are not prepared to comment on specific fact situations other than in the form of an advance income tax ruling. However, we can provide you with the following general comments.
Paragraph 3 of Interpretation Bulletin IT-369R states:
The "property" referred to in subsection 75(2) includes "substituted property", as defined by subsection 248(5). Any income or loss from the property, as well as any taxable capital gain or allowable capital loss from the disposition of it, is attributed to the person from whom the property was directly or indirectly received if the terms of the trust are such that the property
(a)may revert to that person,
(b)may be distributed to beneficiaries determined by that person at a time after the trust was created, or
(c)may only be disposed of with the consent of, or at the direction of, that person while alive.
Therefore, subsection 75(2) would not apply where a sale and related mortgage are bona fide and outside and independent of the trust and the property is not property which is held on conditions which would, on their own, cause the provisions of subsection 75(2) to apply. For example, where the person from whom the property was purchased is a trustee or a beneficiary of the trust, subsection 75(2) could apply.
While we trust these comments will be of assistance, they do not constitute an advance income tax ruling and consequently, are not binding on Revenue Canada, Customs, Excise and Taxation.
Yours truly,
for Director
Manufacturing Industries, Partnerships and
Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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