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.
Principal Issues: Proposed transactions aimed at varying a discretionary inter vivos trust settled on XXXXXXXXXX to extend the distribution date of the trust from XXXXXXXXXX (thus the amended distribution date would still be within the XXXXXXXXXX year deemed disposition date).
The rulings requested are:
A. There will not be a resettlement of the Trust or a disposition of the assets held in the Trust as a result of the variation of the Trust.
B. There will not be a disposition of the income or capital interests of any beneficiary of the Trust as a result of the variation of the Trust for purposes of subsections 106(2) and 107(1) and the definition of "disposition" in subsection 248(1) of the Act.
C. Subsections 56(2), 105(1) and 246(1) of the Act will not be applicable solely as a consequence of the proposed transactions.
D. Section 245 will not be applicable to redetermine the tax consequences.
Position: Rulings A - the proposed amendment to the Trust will not result in a resettlement of the Trust or a disposition of the assets held in the Trust. Ruling B - the proposed amendment to the Trust will not result in a disposition of the income or capital interests of any beneficiary of the Trust as a result of the variation of the Trust for purposes of subsections 106(2) and 107(1) and the definition of "disposition" in subsection 248(1) of the Act. Ruling C - not ruled. Ruling D - not ruled.
Reasons: Rulings A and B are consistent with rulings previously issued. The proposed change is administrative in nature and is not substantial. Ruling C - conditions set out in subsections 56(2), 105(1) and 246(1) do not apply to this case. Ruling D - no GAAR issue to consider in this case.
XXXXXXXXXX 2011-042751
XXXXXXXXXX , 2011
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letters dated XXXXXXXXXX requesting an advance income tax ruling on behalf of the XXXXXXXXXX (the "Trust") with respect to a proposed variation of the terms of the Trust. We also acknowledge our telephone conversations and correspondence concerning your request.
We understand that to the best of your knowledge, and that of the above taxpayer, none of the following issues involved in the ruling request is:
1. in an earlier return of the taxpayer or a related person;
2. being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;
3. under objection by the taxpayer or a related person;
4. before the tax courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; and
5. the subject of a ruling previously considered by the Directorate.
DEFINITIONS
1. In this letter, unless otherwise indicated, all statute references are to the Income Tax Act (Canada) (R.S.C. 1985, 5th Supplement, c.1, as amended, the "Act"), and the following terms have the meanings specified:
(a) "adjusted cost base" ("ACB") has the meaning assigned by section 54;
(b) "capital interest" has the meaning assigned by subsection 108(1);
(c) "income interest" has the meaning assigned by subsection 108(1);
(d) "inter vivos trust" has the meaning assigned by subsection 108(1);
(e) "JV Corp" means XXXXXXXXXX ;
(f) "paid-up capital" ("PUC") has the meaning assigned by subsection 89(1).
Our understanding of the relevant facts, proposed transactions and purposes of the proposed transactions is as follows:
FACTS
2. The Trust is a discretionary inter vivos trust which was settled on XXXXXXXXXX with a $XXXXXXXXXX for the benefit of the family of XXXXXXXXXX and others. The Trust is governed pursuant to a Memorandum of Agreement (the "Trust Agreement").
3. The current trustees of the Trust are XXXXXXXXXX (the "Trustees").
4. The Trust's mailing address is XXXXXXXXXX
5. The tax account number of the Trust is XXXXXXXXXX and its tax returns are filed at the XXXXXXXXXX of the Canada Revenue Agency ("CRA").
6. The discretionary income and capital beneficiaries of the Trust are:
a. XXXXXXXXXX - who is the current wife of XXXXXXXXXX , is over the age of majority and is a resident of the XXXXXXXXXX ("XXXXXXXXXX ");
b. XXXXXXXXXX and XXXXXXXXXX - who are the former wives of XXXXXXXXXX and who are both over the age of majority and Canadian residents;
c. XXXXXXXXXX - who is a child of XXXXXXXXXX and a Canadian resident and is over the age of majority;
d. XXXXXXXXXX and XXXXXXXXXX - who are the children of XXXXXXXXXX , are residents of the XXXXXXXXXX and are over the age of majority;
e. XXXXXXXXXX and XXXXXXXXXX - who are the other issue of XXXXXXXXXX , are both minors and Canadian residents and are the children of XXXXXXXXXX and XXXXXXXXXX ;
f. XXXXXXXXXX - who is the spouse of XXXXXXXXXX ; and
g. a religious, charitable or educational institution or other institutions operating solely for the public benefit.
7. The Trust Agreement provides, inter alia:
a. that the Trustees may, in the exercise of an absolute discretion, at any time prior to the date of final distribution, if they consider it appropriate so to do, pay or transfer any part of the capital of the Trust fund to any person or persons who at that time qualify as beneficiaries who are entitled or contingently or prospectively entitled to receive income;
b. for the final distribution of the Trust at such time as the Trustees in their absolute discretion determine but not later than XXXXXXXXXX or XXXXXXXXXX years after the death of the last survivor of XXXXXXXXXX , his wife and issue, who were living when the Trust was settled, whichever is earlier (the "date of final distribution");
c. that as at the date of final distribution, any remaining property including any accumulated and undistributed income on hand in the Trust fund is to be divided in equal shares per stirpes amongst the issue of XXXXXXXXXX then living; and
d. that by unanimous agreement at any time between the Trustees and upon obtaining the written approval of a majority of the adult beneficiaries at any given time, within the class of a wife, children or other issue of XXXXXXXXXX any term or provision of the Trust may be amended or revoked or additional terms may be added which do not alter or change the classes of beneficiaries or the benefits payable or the terms of the distribution.
8. XXXXXXXXXX are currently a majority of the adult beneficiaries of the Trust (the "Majority Adult Beneficiaries").
9. The Trust's assets include the settlement property (XXXXXXXXXX ) and 100 common shares in JV Corp.
10. JV Corp currently owns marketable securities as well as interests in over a dozen real estate ventures. The majority of the real estate holdings are joint ventures with other investors.
11. Both the ACB and PUC of the common shares of JV Corp held by Trust is $XXXXXXXXXX per share or $XXXXXXXXXX in aggregate.
12. The estimated fair market value of the JV Corp common shares is between $XXXXXXXXXX and $XXXXXXXXXX.
13. It is the intention of the Trustees to distribute the Trust assets on a discretionary basis pursuant to the Trust Agreement. The distribution will be made prior to the revised date of final distribution of XXXXXXXXXX , as proposed below.
PROPOSED TRANSACTIONS
14. The Trustees are proposing to amend the Trust Agreement, in accordance with the process outlined in 7(d) above, to extend the date of final distribution of the Trust from XXXXXXXXXX to XXXXXXXXXX .
15. The Trustees and the Majority Adult Beneficiaries will consent to the variation of the Trust.
16. The proposed language of amendment of the Trust Agreement that will be signed by the Trustees and the Majority Adult Beneficiaries relating to the variation of the Trust is as follows:
"XXXXXXXXXX ."
PURPOSE OF PROPOSED TRANSACTIONS
17. The Trustees are concerned that they will not be able to appropriately deal with the distribution of all of the Trust property prior to the XXXXXXXXXX date of final distribution provided for in the Trust Agreement.
18. The extension of the date of final distribution will provide the Trustees with the additional time they require to deal with the distribution of the Trust property including potentially converting some of the properties to cash. It is intended that the XXXXXXXXXX beneficiaries will be distributed cash due to the complex XXXXXXXXXX reporting requirements for XXXXXXXXXX individuals holding shares in a Canadian corporation whose underlying assets are investment assets.
19. The proposed variation will permit the distribution of the capital assets with accrued gains to the Canadian resident beneficiaries on a tax deferred basis pursuant to subsection 107(2) of the Act.
RULINGS GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, proposed transactions and the purpose thereof, and the terms of the agreement to be entered into as described in paragraphs 14 to 16 above are legally effective, we rule as follows:
A. The proposed amendment to the Trust in 16 above will not result in a resettlement of the Trust or a disposition of the assets held in the Trust for purposes of the Act.
B. The proposed amendment to the Trust in 16 above will not result in a disposition of the income interest or capital interest of any beneficiary of the Trust for purposes of subsections 106(2) and 107(1) and the definition of "disposition" in subsection 248(1) of the Act.
The above advance income tax rulings, which are based on the Act and Income Tax Regulations to the Act in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and are binding on the CRA provided that the proposed transactions are completed within six months of the date of this letter.
For greater certainty, the CRA has not in the context of the rulings considered, confirmed or made any determination in respect of whether the proposed transactions described in 14 to 16 above will result in the creation of a new trust under the laws of a province.
Yours truly,
XXXXXXXXXX
for Director
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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