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:
The tax implications where a XXXXXXXXXX, to which section 143
applies, acquires control of a corporation that is a business
agency as described in subsection 143(1) (and, for purposes of
this letter, we assumed that the communal organization acquires
all the shares of the corporation).
Position TAKEN:
1. The acquisition of control of such a corporation by a
congregation will not result in a disposition of the
corporation's property.
2. A distribution by the corporation to the deemed inter vivos
trust, described in subsection 143(1), will not be considered to
be a dividend and will not ordinarily constitute a taxable event.
3. If property of the corporation is disposed of after the
acquisition of control, any resulting income or loss, including
any recapture or terminal loss, would be considered to be the
income or loss of the trust and not of the corporation.
Reasons FOR POSITION TAKEN:
1. Where a congregation acquires control of such a corporation,
paragraph 143(1)(d) provides that the property of the corporation
is deemed to be property of the above-noted deemed trust;
however, this provision does not provide for a deemed disposition
by the corporation of its property. Furthermore, paragraph
143(1)(d) does not result in a "transfer of property to a trust",
as described in paragraph (c) of the definition of "disposition"
in section 54.
2. & 3. Paragraph 143(1)(g) provides that the congregation and
all of its business agencies are deemed to act and have always
acted as agents for the trust in all matters relating to their
business and other activities.
5-961715
XXXXXXXXXX M. Azzi
Attention: XXXXXXXXXX
January 13, 1997
Dear Sirs:
Re: XXXXXXXXXX
This is in reply to your letter dated February 13, 1996 (your "previous letter"), wherein you requested our views on the tax
implications where a XXXXXXXXXX, to which section 143 of the Income Tax Act (the "Act") applies, acquires control of a
particular corporation. We also acknowledge receipt of your December 9, 1996 letter (which, we note, refers to your previous
letter as your letter "dated January 15, 1996"). We apologize for the delay in responding to your request.
You indicate that, in non-communal organizations, the acquisition of the shares of a corporation does not result in a disposition
of the property of the corporation, except as provided in section 111 of the Act. However, you are concerned with the situation
where a communal organization acquires control of a corporation (and, for purposes of this letter, we assume that the communal
organization acquires all the shares of the corporation) that is a business agency as described in subsection 143(1) of the Act.
In particular, you are concerned that, if such a corporation is carrying on a business and owns property, at the time of acquisition of control, the property of the corporation will become property of an inter vivos trust, as provided in paragraph 143(1)(d) of the Act, and a disposition of the property from the corporation to the trust will occur at fair market value. You are also concerned that if there is a distribution of equity to the trust, that is, a payment of a dividend, the trust or its beneficiaries will pay tax on the dividend. Finally, you inquire whether it is the trust or the corporation that would be considered to be disposing of a property of the corporation, if, after the acquisition of control, such property is disposed of.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.
Subsection 143(1) of the Act provides that, where a congregation (as described therein) carries on business or has effective
management or control of one or more business agencies (corporations, trusts or other persons) that carry on business for purposes that include supporting or sustaining its members or members of any other congregation, an inter vivos trust is deemed to exist. Pursuant to paragraph 143(1)(d) of the Act, the property of the congregation and of all of its business agencies is deemed to be the property of the trust. Furthermore, under paragraph 143(1)(g) of the Act, the congregation and all of its business agencies are deemed to act and have always acted as agents for the trust in all matters relating to their business and other activities.
Thus, where a congregation acquires control of a corporation which is a business agency as described in subsection 143(1) of the Act (hereinafter referred to as a/the "Corporation"), paragraph 143(1)(d) of the Act provides that the property of the Corporation is deemed to be property of the above-described deemed trust; however, in our view, this provision does not provide for a deemed disposition by the Corporation of its property. Furthermore, in our view, paragraph 143(1)(d) of the Act does not result in a "transfer of property to a trust", as described in paragraph (c) of the definition of "disposition" in section 54 of the Act. Consequently, the acquisition of control of a Corporation by a congregation will not result in a disposition of the Corporation's property.
Furthermore, as the Corporation is deemed to act as agent for the trust in all matters relating to the Corporation's business and
other activities, income earned by the Corporation will be income of the trust and not income or surplus of the Corporation.
Consequently, a distribution by the Corporation to the trust will not be considered to be a dividend and will not ordinarily constitute a taxable event (as it would be a transfer of property within the same inter vivos trust). In addition, if property of the Corporation is disposed of after the acquisition of control, any resulting income or loss, including any recapture or terminal loss, would be considered to be the income or loss of the trust and not of the Corporation.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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