29 January 1997 External T.I. 9626495 - POTENTIAL SWISS BANK ACCOUNT

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:

Tax Implication of having an interest in a Swiss Bank account created in the Nazi's reign in Germany

Position:

General views on the tax treatment of income earned in such a bank account

Reasons:N/A

		962649
XXXXXXXXXX	S. Leung

January 29, 1997

Dear Sirs:

Re: Potential Swiss Bank Account

We are writing in response to your letter of June 20, 1996 in which you requested our comments on the tax treatment of funds in a Swiss bank account which might have been set up by your late father or his company during the Nazi's reign in Germany if such a bank account can be discovered as still existing and you have a beneficial interest in the bank account.

The appropriate tax treatment in connection with a Swiss bank account which your late father or the company that his business partners in Scotland incorporated ("FCo") might have had, depends very much on the facts and circumstances of the situation. The relevant information includes details as to the nature of the transactions and events associated with the ownership of the bank account at the time it was established and up to and including the present time. Since the information provided in your letter is very sketchy and we do not have all the facts and circumstances of the situation, it is very difficult for us to comment on the appropriate tax treatment. However, we can offer the following general comments based on the assumptions that you have

a direct interest in the yet-to-be-discovered Swiss bank account;

an indirect interest in such bank account by owning the shares of FCo which owns the bank account; or

a beneficial interest in a trust which has

either a direct interest in the bank account, or
an indirect interest in the bank account by holding shares of FCo which owns the bank account.

.If an interest in a Swiss bank account is owned by you directly (or through a person, such as XXXXXXXXXX, acting as an agent), your share of the interest income earned in the bank account should have been reported by you on your personal income tax returns each year regardless of whether you received the income from such bank account. However, depending on the situation, you may only be required to include such interest in computing your income for Canadian tax purposes for the last few years where any reassessment to your income tax returns for those years is not yet statute-barred.^(F1) Note that interest income is reported on an accrued basis and you are required to report such interest annually regardless of whether you have received the income for a particular year.

.If the Swiss bank account belongs to FCo, you may, depending on the circumstances, nevertheless be required to include an amount in respect of such interest income from the Swiss bank account in computing your income for tax purposes for the years referred to in the preceding paragraph. Such would be the case, for example, if you beneficially own more than 50% of all the shares of FCo and the interest represents income from property to FCo.

.If a non-resident trust in which you are a beneficiary is involved (for example, XXXXXXXXXX is acting as a trustee) and that trust either owns the Swiss bank account directly or the shares of FCo which owns such bank account, depending on the circumstances, you or the trust could be taxable in Canada on the annual interest earned from such bank account unless such amounts have been distributed to other beneficiaries. If the interest income is taxed in the trust, the trust may be assessable on such income beyond the normal reassessment period as the trust has probably never filed a tax return in Canada and therefore has not established a normal reassessment period.

.Except for what has been discussed above, generally speaking, any withdrawal of funds from the Swiss bank account by you, FCo, or the trust, as the case may be, would not be taxed in Canada as it would be considered to be a distribution of capital.

.If the amount which is taxable in Canada is disclosed voluntarily to the Department, it is the Department's policy that no penalty will be imposed provided that the tax thereon with interest is paid to (or acceptable arrangement for such payment is made with) the Department. In this regard we enclose herewith a copy of Information Circular 85-1R2 "Voluntary Disclosures" for your reference.

In summary, if you own an interest in the Swiss bank account directly or through an agent, you should have been taxed on the interest earned from such bank account. If instead you own shares of a foreign company or an interest in a trust which owns such bank account, depending on the circumstances, you may be liable to pay tax in Canada on such bank interest.

We hope the above comments which represent our general views with respect to the subject matter of your letter are of assistance. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 22 of Information Circular 70-6R3, are not binding on the Department.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch

ENDNOTES

¹ This is applicable only if you have filed income tax returns in the last few years and those returns have been assessed and the notices of assessment or reassessment have been issued. Generally, the normal reassessment period is three years from the date the notice of assessment or reassessment is issued except in certain cases it may be six years. After such a period the tax returns are not allowed to be reassessed (i.e., statute-barred) except where fraud or misrepresentation is involved.