17 October 1997 External T.I. 9723145 - SURRENDER OF INTEREST - NON-RESIDENT BENEFICIARY

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:

1. Does the position stated in paragraph 9 of Interpretation Bulletin IT-385R2 apply in computing the amount of taxable income of a non-resident beneficiary of a trust resident in Canada under subparagraph 115(1)(a)(iv) of the Act?

2. Do the principles set out in paragraph 9 of Interpretation Bulletin IT-385R2 apply with respect to the surrender of a capital interest in a trust?

Position:

1. Depending on the facts of a particular situation, the position stated in paragraph 9 of Interpretation Bulletin IT-385R2 could apply to determine, for the purpose of subparagraph 115(1)(a)(iv) of the Act, the amount required by subsection 106(2) to be included in computing a non-resident beneficiary's income as proceeds of the disposition of an income interest.

2. With respect to the surrender of a capital interest in a trust, our opinion is that the principles set out in paragraph 9 of Interpretation Bulletin IT-385R2 are equally applicable to surrenders of capital interests (the reference to subsection 106(2) being replaced with a reference to section 40).

Reasons:

1. The same position should apply to the surrender of an income interest by a non-resident beneficiary for the purpose of subparagraph 115(1)(a)(iv) of the Act than to the surrender of an income interest by a resident beneficiary.

2. For consistency, the same position should apply for capital interests. Previous opinion given by the Department.

5-972314
XXXXXXXXXX Sylvie Labarre, CA

Attention: XXXXXXXXXX

October 17, 1997

Dear Sir\Madam:

Re: Surrender of an interest in a trust

This is in reply to your letter of August 29, 1997 regarding the Department's position stated in paragraph 9 of Interpretation Bulletin IT-385R2.

You have asked whether this position would apply where a non-resident beneficiary surrenders an income interest in a trust resident in Canada. You have stated in your letter that the non-resident beneficiary is not exempt from potential tax under the Income Tax Act (the "Act") as a result of the Canada/U.S. Income Tax Convention. You have also requested our opinion as to whether this position applies to the surrender of a capital interest in a trust resident in Canada.

As explained in Information Circular 70-6R3, it is not the Department's practice to comment on proposed transactions other than in the form of an advance income tax ruling. Taxpayers seriously contemplating a proposed transaction are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. We are therefore not in a position to give a definitive response to your enquiry. However, we can offer you the following general comments which may be of assistance although, in certain circumstances, they may not be appropriate to your specific situation.

Generally, it is our view that the position stated in paragraph 9 of Interpretation Bulletin IT-385R2 could apply to determine, for the purpose of subparagraph 115(1)(a)(iv) of the Act, the amount required by subsection 106(2) to be included in computing a non-resident beneficiary's income as proceeds of the disposition of an income interest.

With respect to the surrender of a capital interest in a trust, our opinion is that the principles set out in paragraph 9 of Interpretation Bulletin IT-385R2 are equally applicable to surrenders of capital interests (the reference to subsection 106(2) being replaced with a reference to section 40). Although the amount of a non-resident's taxable income is determined under Division D of Part I of the Act, it is Subdivision c of Division B which provides the rules for determining the amount of a taxable capital gain.

As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, this opinion is not a ruling and accordingly, is not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

Marc Vanasse, CA
Manager
Resources, Partnerships and Trusts Section
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch