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:
Enduring Power of Attorney and deemed ownership of shares under 251(5)(b)(i) and 256(1.4)(a)
Position:
Attorney will be deemed to own the shares even if he has the obligation to protect the donor's interest.
Reasons:
There is no statutory exception in the ITA referring to the duties of the attorney
5-972653
XXXXXXXXXX Marie-Marthe Gagnon
Attention: XXXXXXXXXX
November 26, 1997
Dear Sirs:
Re: Enduring Power of Attorney
This is in reply to your letter of September 22, 1997 wherein you refer to your June 27, 1996 letter and our October 17, 1996 answer. These letters, were about the application of paragraphs 251(5)(b) and 256(1.4)(a) of the Income Tax Act (hereinafter the Act) in the following situation involving an enduring power of attorney.
Mr. A and Mr. B own all the issued shares of corporations ACo and BCo respectively. Mr. B is Mr. A's son. The corporations ACo and BCo are related by virtue of subparagraph 251(2)(c)(ii). Mr. A executes an enduring power of attorney (hereafter EPA) pursuant to the Power of Attorney Act of Alberta (hereafter PAAA). The EPA would provide that it is to take effect on the permanent disability of Mr. A or that it is exercisable at any time.
In your latest letter, you referred us to section 8 of the PAAA (a copy was enclosed). This section provides that "the attorney has, unless the enduring power of attorney provides otherwise, a duty to exercise the attorney's powers to protect the donor's interests during any period in which the attorney knows, or reasonably ought to know, that the donor is unable to make reasonable judgments in respect of matters relating to all or part of the donor's estate."
YOUR QUESTION
Given that the statutory duty of the attorney is to protect the donor's interest, is it still Revenue Canada's view that subparagraph 251(5)(b)(i) and paragraph 256(1.4)(a) of the Act deem the attorney to own the shares owned by the donor?
As stated in our October 17, 1996 answer, we are unable to offer specific comments on how the execution of an EPA would affect the application of paragraphs 251(5)(b) and 256(1.4)(a) of the Act without knowing all the relevant provisions of the EPA. Nevertheless, we can provide the following general comments which we hope will be of assistance to you.
Where an EPA becomes effective solely on the permanent disability of the person ("donor") who gives the EPA, it is our view that paragraphs 251(5)(b) and 256(1.4)(a) of the Act cannot apply, as a result of the EPA in and by itself, prior to the time where the donor becomes permanently disabled.
Where the terms of an EPA are such that the EPA only comes into effect on the permanent disability of the donor and gives the attorney the power to control the voting rights on any shares of a corporation owned by the donor, it is our view that subparagraph 251(5)(b)(i) and paragraph 256(1.4)(a) of the Act deems the attorney to own the shares owned by the donor (for the purposes mentioned in the preamble of subsections 251(5) and 256(1.4) of the Act), from the time the donor becomes permanently disabled.
Where the powers of the attorney under an EPA include the right to control the voting rights of the shares of a corporation owned by the donor and the powers under the EPA can be exercised at any time by the attorney, the attorney under the EPA is deemed, pursuant to subparagraph 251(5)(b)(i) and paragraph 256(1.4)(a) of the Act, to own the shares of a corporation owned by the donor (for the purposes mentioned in the preamble of subsections 251(5) and 256(1.4) of the Act), from the time the EPA is executed by the donor.
The fact that section 8 of the PAAA specifies that the attorney has a duty to protect the donor's interests (unless the enduring power of attorney provides otherwise) does not modify our previous comments. The requisite conditions for the application of subparagraph 251(5)(b)(i) and paragraph 256(1.4)(a) are not affected by the duties of the attorney under the PAAA.
The foregoing opinion is not a ruling. In accordance with the guidelines set out in Information Circular 70-6R3, this opinion is not binding on the Department.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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