18 August 1995 External T.I. 9516975 - XXXXXXXXXX & PERSONAL 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:

Can a communal organization be a personal trust?

Position TAKEN:

	Yes, a communal organization can be a personal 	trust.

Reasons FOR POSITION TAKEN:

Same question answered in file 951256

Similar position taken re:EPSP - see E9432135.

Deeming provision in 143(1) is not limited to specific sections of the Act - rather the trust would be deemed to exist for all purposes of the Act. There is nothing in the Act prohibiting it from being a personal trust.

143(2) contains wording similar to 104(29) thereby deeming income to be payable for purposes of 104(13) (see legal opinion E943241A attached)...therefore the payable issue wrt the deemed gain is not an issue where 143(2) election is made by the communal organization.

		951697
XXXXXXXXXX                                      L. Holloway
(613) 957-8953

Attention: XXXXXXXXXX

August 18, 1995

Dear Sirs:

Re: XXXXXXXXXX and the election under s.110.6(19) of the Income Tax Act (the "Act")

This is in reply to your letter of June 26, 1995, requesting our comments on whether members of a XXXXXXXXXX may file an election under subsection 110.6(19) of the Act. All further references to statutes or parts thereof, will be to the Act.

The scenario you have described appears to reflect an actual fact situation and proposed transactions, and as stated in paragraph 21 of Information Circular 70-6R2, we are not prepared to comment on specific fact situations or proposals other than in the form of an advance income tax ruling. However, we can provide you with the following general comments with respect to communal organizations.

Where a communal organization, deemed by subsection 143(1) to be an inter vivos trust, meets the conditions in paragraph (b) of the definition of personal trust in section 248(1), it would qualify as a personal trust. Whether a beneficial interest was acquired for consideration payable to the trust or to any person who has made a contribution to the trust is a question of fact; however, there is nothing particular in the Act prohibiting a communal organization from being a personal trust.

Subsection 110.6(19) allows a personal trust to elect to have a deemed disposition of capital property owned on February 22, 1994. This allows the beneficiary to take advantage of any unutilized lifetime capital gains exemption if this deemed capital gain can be made payable to a beneficiary pursuant to subsection 104(13) or made the subject of a preferred beneficiary election pursuant to subsection 104(14) (assuming the appropriate designations are also made under subsections 104(21) and 104(21.2)). A communal organization cannot make a preferred beneficiary election by virtue of paragraph (c) of the definition of "trust" in subsection 108(1). Where such an organization elects under subsection 143(2), it's taxable income, including a gain resulting from a subsection 110.6(19) election, will be deemed to have been payable to the beneficiaries and will be included in the income of the specified beneficiaries under subsection 104(13). Provided the communal organization makes the appropriate designations under subsections 104(21) and 104(21.2), the beneficiaries may then shelter such gains from taxation to the extent of any unused capital gains exemption, subject to the limitations set out by subsection 110.6(3).

Where a subsection 110.6(19) election is made the property will have a new acquisition date of February 23, 1994, pursuant to subparagraph 110.6(19)(a)(ii). This new deemed acquisition date is of particular significance when an election is made in respect of qualified farm property. As the definition of qualified farm property varies for real property acquired pre and post June 17, 1987, it is important to consider whether by virtue of the new acquisition date the property will meet the post June 17, 1987 requirements and continue to be qualified farm property.

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
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch