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 251(5)(b)(i) and 256(1.4)(a) apply to an enduring power of attorney which is unrestricted and can be exercised at any time?
Position: Yes
Reasons: Wording of 251(5)(b) and 256(1.4) is very broad.
STRATEGY INSTITUTE - 1998 Round Table
Question
Power of Attorney
Will the Department reconsider its position that the granting of an enduring power of attorney (“EPA”) which is unrestricted and can be exercised at any time creates a controlling interest under subparagraph 251(5)(b)(i) and paragraph 256(1.4)(a) of the Income Tax Act (hereafter the “Act”) even when no voting powers are exercised? Many if not most shareholders have granted such powers of attorney, in accordance with estate planning practice in the past without the Department’s current position being contemplated. Will existing powers of attorney granted before this policy be grandfathered in any way, or will a substantial number of corporations be subject to the consequences such as loss of the small business deduction. What is the mischief the Department seeks to arrest by this interpretation? Is this not a serious infringement on the ability of individuals to select the best person to manage their affairs if they lose capacity short of permanent disability? It would seem that such a decision should not be affected by income tax considerations.
Response
We assume that the policy or position referred to in the question above is our interpretation of subparagraph 251(5)(b)(i) and paragraph 256(1.4)(a) of the Act as provided in two letters of opinion issued in 1996 and 1997. The issue in those letters was related to certain EPAs executed pursuant to the Power of Attorney Act of Alberta. We stated in those letters that 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 where 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 have the same position in relation to the control of the corporation as if he owned the shares or to own the shares of 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.
In Ontario, such a power of attorney for property of a person is rather called a “continuing power of attorney for property” (“CPA”) and is subject to the Substitute Decisions Act. It is our view that the position above applies as well to a CPA that includes the right to control the voting rights of the shares owned by the grantor where the powers under the CPA can be exercised at any time by the attorney, even when no voting powers are actually exercised.
The scope of subparagraph 251(5)(b)(i) and paragraph 256(1.4)(a) of the Act is very broad. Those provisions apply where a person has a right under a contract, a right in equity or a right arising otherwise than under a contract or in equity, either immediately or in the future and either absolutely or contingently, to control the voting rights on shares of the capital stock of a corporation (except where the right is not execisable at the time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual).
We believe that our position, as stated above, is a reasonable interpretation of subparagraph 251(5)(b)(i) and paragraph 256(1.4)(a) of the Act. Moreover, it is not subject to a grandfathering rule.
Any specific concern that you may have with respect to the tax policy behind subparagraph 251(5)(b)(i) and paragraph 256(1.4)(a) of the Act should be submitted to the Department of Finance for consideration.
Author: R. Gagnon
File: 5-981437
Date: June 12, 1998
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