Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Does the exception in subsection 122(2) apply to a deemed trust under subsection 149(5)?
Position: No.
Reasons: The deemed trust is not deemed to be established before June 18, 1971 as required by the condition in paragraph 122(2)(a).
2010-035522
XXXXXXXXXX Guy Goulet CA, M.Fisc.
613-957-4364
April 7, 2010
Dear Madam,
Subject: Subsection 149(5)
This is in response to your letter of January 13, 2010, in which you requested our comments regarding the application of subsections 122(2) and 149(5) in the Particular Situation described below.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Particular Situation
1. Club is a non-profit organization described in paragraph 149(1)(l) and was formed in XXXXXXXXXXXX.
2. The deeming rules in subsection 149(5) apply for the purpose of taxing property income earned by Club. Pursuant to that subsection:
- An inter vivos trust (the "Trust") is deemed to have been created at the end of 1971;
- Club is deemed to be the trustee exercising control over the property of the Trust;
- A tax is payable by the Trust on its taxable income for each taxation year;
- the income and taxable income of the Trust for each taxation year is computed on the assumption that the Trust had no income or losses other than:
o income and losses from property, and
o taxable capital gains and allowable capital losses from dispositions of certain properties;
- in computing the taxable income of the Trust for each taxation year, there will be deducted, in addition to any other deductions permitted by Part I of the Act, an amount of $2,000. However, no deduction is claimed under section 112 or 113.
Your Question
You wish to know whether the exception in subsection 122(2) could apply in this case so that the Trust would be taxed at the graduated personal tax rates rather than the top marginal tax rate.
Our Comments
It appears to us that the situation described in your letter may constitute an actual situation involving taxpayers. The Canada Revenue Agency ("CRA") does not generally provide written opinions on proposed transactions otherwise than by way of an advance income tax ruling. Furthermore, it is the responsibility of the relevant Tax Services Office to determine whether completed transactions have received appropriate tax treatment. We can, however, offer the following general comments that may not fully apply in a particular situation.
It is difficult for us to comment on the situation you have submitted to us since we do not have all the relevant facts and circumstances surrounding the transactions described in your application. However, we are of the view that the condition in paragraph 122(2)(a) is not satisfied in the Particular Situation. That condition requires that the Trust be established before June 18, 1971, whereas subsection 149(5) deems the Trust to have been created at the end of 1971. This interpretation is consistent with the position outlined at the end of paragraph 3 of Interpretation Bulletin IT-406R2 Taxes Payable by an Inter Vivos Trust.
Consequently, we are of the view that Club should compute the tax payable by the deemed Trust for a particular taxation year using the flat tax rate for inter vivos trusts equal to the top marginal tax rate applicable to individuals pursuant to paragraph 122(1)(a).
We hope that our comments will be of assistance.
Best regards,
Ghislain Martineau
Manager of the Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
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