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.
cash received by Canadian from Hong Kong under land
inheritance right system: Is the amount non-taxable as
either a windfall or as a capital distribution from a trust?
Also what are the information reporting requirements under
the foreign property information reporting rules
not a windfall if the land is held in trust. Question of
fact as to whether the distribution is a payment of capital.
The interest in the non-resident trust does not appear to be
a specified foreign property since the interest is acquired
all amounts (other than capital distributions & proceeds of
disposition) received out of a non-resident trust are
taxable under 104(13)(c)
233.6 and not 233.3 is likely the correct reporting regime
for a interest in a non-resident trust that was acquired by
birthright if the settlor has never been resident in Canada
for 5 years
January 13, 1997
Re: Hong Kong Land Rights
We are replying to your letter of July 31, 1996 concerning the tax treatment of amounts received by a Canadian resident from an administrative council of elders in Hong Kong in respect of the individual's rights under the customary land right inheritance system described in your letter.
Under this system, the land in question is rural land situated in remote areas of Hong Kong. The land is managed by an administrative council of elders for the benefit of all living male members of the clan. The male members of the clan do not have any direct ownership in the land nor do they have any right to enforce distribution of cash received by the elders upon the disposition of any portion of the ancestral land. Any distribution that is made by the elders is divided equally among all living male members of the clan at the time of the distribution, regardless of where members of the clan live at that time. The inference drawn from various comments in your letter suggest that no written documentation exists with respect to this system of land right inheritance.
You ask whether the amount of any cash distribution arising from the disposition of the land will be required to be included in the income of the Canadian residents who receive a portion of the distribution or whether the amount can be excluded from income either as a windfall or as a capital distribution from a trust.
Amounts paid to a beneficiary of a trust under the terms of a trust cannot be considered a windfall, even if the trust is discretionary and the beneficiary has no enforceable right to, or expectation of, a distribution from that trust in any particular taxation year. It is your view that a valid trust exists and, based on the information submitted, we have no reason to dispute that finding.
Paragraph 104(13)(c) of the Act requires a person to include all amounts payable from a non-resident trust in respect of that person's interest in the trust, other than the proceeds of disposition of all or part of that person's interest in the trust or an amount paid as a distribution of capital by a personal trust. Consequently, a distribution from a non-resident trust to a beneficiary which is not proceeds of disposition of the beneficiary's interest therein, will generally be included in the computation of the beneficiary's income regardless of the source to the trust of the funds so distributed (i.e., from the sale of a capital asset or otherwise), unless the trust is a personal trust and the amount is paid as a capital distribution of the trust.
Whether a particular amount paid by a non-resident trust to a beneficiary is paid as a distribution of capital is a question to be determined with reference to all the relevant facts, including consideration of how the disposition of the capital asset, as well as the distribution to the beneficiary, are treated for taxation purposes in the relevant foreign jurisdiction.
You also asked us to comment on an individual's obligation to prepare an information return in respect of an interest in a trust as described herein. For the purpose of our response, we assume that the only property held by the non-resident trust is land that is held as capital property.
Based on the information provided, it would appear that a Canadian beneficiary's interest in the customary land right inheritance system described in your letter is not "specified foreign property" within the meaning of proposed section 233.3 of the Act. As a result, the annual information return required under proposed subsection 233.3(3) would not be required. However, under proposed
subsection 233.6(1) of the Act, the individual would be required to file an information return for any taxation year in which a distribution from the foreign trust is received, whether such distribution was taxable or not.
The above comments represent our general views with respect to the subject matter of your letter and are given in accordance with paragraph 22 of Information Circular 70-6R3 dated December 30, 1996. Accordingly, the above comments do not constitute an advance income tax ruling and are not binding on Revenue Canada.
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Policy and Legislation Branch
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