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:
1)Is gain attributable to foreign currency on sale of U.S. securities sourced to U.S. for purposes of Article XXII(2) of Canada-U.S. Convention?
2)Can Estate deduct income attributable to net taxable capital gains under 104(6)(b)?
Position:
1)Yes.
2)Yes.
Reasons:
See Issue Statement for detail.
1)See Decision Summary 6102-5 (Ken Major, October 29, 1986).
2)Estate is being wound up, capital has vested in beneficiary and is being paid to beneficiary.
960534
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
We are writing in response to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-referenced taxpayer. We also acknowledge the information provided during our various telephone conversations.
All terms and conditions used herein that are defined in the Income Tax Act (Canada) (the "Act") have the meaning given in such definition unless otherwise indicated, and all references herein to sections or components thereof are references to the Act unless otherwise indicated.
Our understanding of the facts and proposed transactions is as follows:
Facts
1. XXXXXXXXXX is a testamentary trust, created under the last will and testament dated XXXXXXXXXX a resident of XXXXXXXXXX.
2.Letters probate were granted on XXXXXXXXXX to the executors named in the Will, XXXXXXXXXX and XXXXXXXXXX (the "Trustees"). You have provided a copy of the Letters Probate with the will appended.
3. XXXXXXXXXX.
4.The Estate is resident in Canada. Its taxation year end is XXXXXXXXXX.
5.Clause XXXXXXXXXX of the Will directs as follow in respect of XXXXXXXXXX.
XXXXXXXXXX
6.The Beneficiary attained XXXXXXXXXX.
7.The Beneficiary is a citizen and resident of the United States for purposes of the Canada - United States Income Tax Convention 1980 (the "Convention").
8.The Beneficiary is XXXXXXXXXX and therefore an exempt beneficiary.
9.The Estate's assets consist primarily of shares of U.S. corporations traded on stock exchanges in the U.S. and denominated in U.S. dollars (the U.S. Securities"), and shares of Canadian corporations traded on stock exchanges in Canada and bonds and debentures issued by such Canadian corporations and by Canadian governments (the "Canadian Securities"). None of the U.S. Securities or Canadian Securities are taxable Canadian property. There is also a Canadian dollar non-interest bearing trust account in XXXXXXXXXX.
10.The U.S. Securities and the Canadian Securities are held for the Estate through accounts with a Canadian investment dealer.
11.Both the U.S. Securities and the Canadian Securities currently have accrued unrealized net capital gains.
12.To the best of your knowledge and that of the taxpayers involved:
a) none of the issues involved in this advance income tax ruling is being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed, and
b) none of the issues involved in this advance income tax ruling is the subject of any notice of objection or is under appeal.
Proposed Transactions
13.The Estate will make an election pursuant to subsection 104(5.3) on or before XXXXXXXXXX so as to defer the 21-year deemed disposition provided for by subparagraph 104(4)(b)(ii), which would otherwise take place on XXXXXXXXXX.
14.Since the beneficiary has attained XXXXXXXXXX the Estate proposes to sell the Canadian Securities and the U.S. Securities and forthwith distribute the proceeds to the Beneficiary, after payment of estate expenses and subject to holdback out of capital of a reserve pending court approval of the final estate accounts and receipt of tax clearance certificates.
15.The U.S. Securities will be sold by the Estate through a U.S. stock exchange, using the services of its Canadian-based investment dealer, which has a seat on the exchange.
16.Proceeds from the sale of the U.S. Securities will be assigned as of the time of sale to the Beneficiary, and the investment dealer will be directed not to repatriate the proceeds to Canada but rather to pay the proceeds in U.S. dollars directly to the Beneficiary in the United States.
17.The Estate will withhold and remit tax at the rate of 15 per cent on the income attributable to the net taxable capital gains derived from the sale of the Canadian Securities and paid to the Beneficiary pursuant to Part XIII and Article XXII(2) of the Convention.
Purpose of the Proposed Transactions
The purpose of the proposed transactions is to liquidate the Estate assets and distribute the remainder of the residue of the Estate to the Beneficiary as required by clause XXXXXXXXXX of the Will.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:
A.Provided that all the assets of the Estate are being distributed, the income attributable to net taxable capital gains realized on the sale of both the Canadian Securities and the U.S. Securities will be considered payable to the Beneficiary and deductible from the Estate's income pursuant to paragraph 104(6)(b).
B.Any capital gain or capital loss realized on the sale of the U.S. Securities will be determined under subsection 39(1) and subsection 39(2) will not apply.
C.To the extent the income distributed by the Estate to the Beneficiary is attributable to net capital gains realized by the Estate on the sale of the U.S. Securities it will be exempt from Part XIII tax pursuant to paragraph 2 of Article XXII of the Convention.
The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, and are binding on Revenue Canada, Customs, Excise and Taxation provided that the proposed transaction in paragraph 12 is completed by XXXXXXXXXX and the remaining proposed transactions are completed by XXXXXXXXXX
These rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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