30 June 1995 Internal T.I. 9515917 - capital gains election & trusts

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: capital gains election available to a trust

Position: unavailable unless 104(21.2) is met

Reasons: legislation

June 30, 1995

Estate Returns Processing Trusts
Winnipeg Taxation Centre Section
L. Holloway
Attention: Joan Skelly (613) 957-2104
951591

Capital Gains Elections

This is in reply to your facsimile of June 15, 1995, requesting confirmation of a previous telephone conversation (Skelly/Holloway) concerning the election available to trusts under subsection 110.6(19) of the Income Tax Act (the "Act").

The situation outlined in your facsimile follows:

-ten testamentary trusts were created upon the death of one individual

-the property held by each trust is a one-tenth interest in the deceased's property

-each trust has only one beneficiary

-each trust makes the capital gains election on its capital assets held on February 22, 1995

-nine of the ten trusts have a resident beneficiary, the tenth trust has a non-resident beneficiary.

In particular you had asked how the election should be handled in the tenth trust; whether it should be disallowed entirely or whether the deemed gain should be taxed in the trust.

Paragraph 110.6(20)(b) of the Act provides that subsection (19) applies to a property of an elector only if:

(b)where the elector is a personal trust, its application to all of the properties in respect of which an election was made under that subsection by the elector would result in

(i)an increase in the amount deemed by subsection 104(21.2) to be a taxable capital gain of an individual (other than a trust) who was a beneficiary under the trust at the end of February 22, 1994 and resident in Canada at any time in the individual's taxation year in which the trust's taxation year that includes that day ends,....

In the case of the tenth trust, an election under 110.6(19) would not result in "an increase in the amount deemed by subsection 104(21.2) to be a taxable capital gain of an individual (other than a trust) who was a beneficiary under the trust at the end of February 22, 1994 and resident in Canada", and therefore subsection 110.6(19) would not apply to the property of the trust. Where subsection 110.6(19) does not apply to the property of the trust, there would be no deemed disposal of property and consequently no gain to either tax in the trust or flow out to the beneficiary.

T. Murphy
Section Chief
Trusts Section
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch