4 February 1998 External T.I. 9715275 - FOREIGN INVESTMENT REPORTING REQUIREMENTS

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:

Whether a particulr non-resident trust is subject to the foreign reporting requirement rules?

Position:

Not sufficient information to decide. Offer general comments on which reporting requirement rules would most likely apply to the trust.

Reasons:

N/A

971527
XXXXXXXXXX S. Leung

February 4, 1998

Dear Sirs:

Re: Foreign Investment Reporting Requirements

We are writing in response to your letter of April 10, 1997 in which you requested our comments on whether the new foreign investment reporting rules under sections 233.2 to 233.6 of the Income Tax Act (the “Act”) would apply to an offshore non-resident trust in respect of which section 94.1 of the Act applies. You mentioned in your letter that a lawyer is the settlor and a Canadian resident is a major beneficiary of the trust.

Our Comments

Because the information you provided us is very limited, we are not able to provide you with a specific response to your enquiry. However, we can offer the following general comments.

It is not clear what you mean by a Canadian resident being a major beneficiary of the trust. If the trust is not a discretionary trust and the fair market value of the beneficiary’s interest in the trust represents more than 10% of the fair market value of all the beneficiaries of the trust, the trust may well be deemed to be a controlled foreign affiliate of the beneficiary under subparagraph 94(1)(d)(i) of the Act. If subparagraph 94(1)(d)(i) of the Act applies, section 94.1 of the Act would not apply to the beneficiary in respect of his interest in the trust because the trust is a controlled foreign affiliate of the beneficiary.

Where the trust is a controlled foreign affiliate of the beneficiary, the beneficiary is a reporting entity under paragraph 233.4(1)(b) of the Act and subsection 233.4(4) of the Act would apply. In other words, the beneficiary would have to file Form T1134-B “Information Return relating to Controlled Foreign Affiliates”.

If a person who is a resident of Canada has transferred or lent property, directly or indirectly in any manner whatever, to the trust, it is likely that that person would need to file Form T1141 “Information Return in respect of Transfers or Loans to a Non-resident Trust” under subsection 233.2(4) of the Act. In your situation, the trust is most likely not an exempt trust as defined in subsection 233.2(1) of the Act. However, if otherwise applicable, you may wish to confirm this by reviewing the definition .

Depending on whether or not the beneficiary acquired the interest in the trust for consideration and whether or not section 233.4 applies, the beneficiary may need to file Form T1135 “Information Return relating to Foreign Property” under subsection 233.3(3) of the Act.

If none of sections 233.2 to 233.4 applies in respect of the trust and the trust distributes property to the beneficiary or the beneficiary is indebted to the trust in a particular year, the beneficiary will, under subsection 233.6(1) of the Act, need to file Form T1142 “Information Return in respect of Distributions from and Indebtedness owed to a Non-resident Trust”.

It should be noted that pursuant to Revenue Canada News Release, dated October 2, 1997, the requirement to report foreign investment property on Form T1135 under subsection 233.3(3) of the Act has been postponed to April 30, 1999 from April 30, 1998. At that time, a taxpayer will be required to file Form T1135 for each fiscal year ending after 1995. However, the first deadline for filing information returns under subsections 233.2(4) and 233.6(1) of the Act (i.e., Forms T1141 and T1142) is April 30, 1998 and under subsection 233.4(4) of the Act (i.e., Forms T1134-A and T1134-B) is June 30, 1998.

We regret that our comments above could not be more specific. We can only offer specific answers to your query if you provide us with all the information regarding your situation.

Yours truly,

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