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 ISSUE:
Request for an administrative relief from Part XII.2 of the Income Tax Act.
Position:
No.
Reasons:
The tax consequences are clear in law. So, our Directorate cannot exercise ministerial discretion to provide administrative relief from Part XII.2 of the Act.
5-962541
XXXXXXXXXX Sylvie Labarre
Attention: XXXXXXXXXX
March 27, 1997
Dear Sirs:
Re: Part XII.2 Tax
We are replying to your letter of July 22, 1996 wherein you requested an administrative relief from Part XII.2 of the Income Tax Act (the "Act") in respect of the specific fact situation described in your letter. We apologize for the delay in responding to your request.
The particular situation described in your letter involves a specific taxpayer and a completed transaction. As explained in Information Circular 70-6R3, the appropriate Tax Services Office is responsible for determining the tax consequences that arise from completed transactions after a thorough review of the relevant facts and documentation. We are therefore not in a position to give a definitive response to your enquiry. However, we are prepared to provide the following general comments which may be of some assistance.
We agree with your analysis of the statutory provisions regarding the specific fact situation described in your letter of July 22, 1996. We also agree that the tax results were probably not intended by the Department of Finance. However, this Department is not in a position to exercise ministerial discretion to provide administrative relief from Part XII.2 tax as the tax consequences are clear in law.
We have taken the liberty of informing the Department of Finance of this anomaly by forwarding a copy of this letter and yours dated July 22, 1996 for their perusal.
Although we regret that the Department's response on ministerial discretion could not be more favourable, the following comments may alleviate some of your concerns.
Under the existing legislation, Trust A (as referred to in your letter) could make a designation pursuant to subsection 104(13.1) of the Act in its tax return and pay tax on the amount so designated. The amount designated under subsection 104(13.1) of the Act will be deemed not to have been paid or to have become payable to Trust B under subsection 104(13) of the Act. Pursuant to subsection 210.2(1) of the Act, Part XII.2 of the Act would not be applicable to Trust A if Trust B does not include an amount in computing its income under Part I by reason of subsection 104(13) or 105(2).
An amount designated under subsection 104(13.1) or (13.2) and included in computing trust income will not be subject to tax in the hands of a beneficiary when that amount, net after tax, is paid out to the beneficiary.
Where paragraph 53(2)(h) applies, an amount designated to a beneficiary by a trust under subsection 104(13.1) or (13.2) reduces the adjusted cost base of the beneficiary's capital interest in the trust.
The above comments are an expression of opinion only and, as explained in paragraph 22 of IC-70-6R3 dated December 30, 1996 are not binding on the Department.
We trust our comments will be of assistance to you.
Yours truly,
Marc Vanasse
Acting section chief
Resources, Partnerships and Trusts Section
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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