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:
What is the amount that a RCA trust must include under subparagraph (b)(i) of the definition of "refundable tax" in subsection 207.5(1) in the situation where the RCA trust only receives the taxable portion of a capital gain from a unit trust?
Position:
In the situation described, only the amount received would need to be included.
Reasons:
The legislation.
XXXXXXXXXX 2008-030115
September 16, 2010
Dear XXXXXXXXXX
Re: Refundable Tax
We are writing in response to your letter received November 18, 2008 in which you requested a technical interpretation on which amount should be included in subparagraph (b)(i) of the "refundable tax" as defined in subsection 207.5(1) of the Income Tax Act ("Act") in the following situation.
A retirement compensation arrangement ("RCA") trust holds an investment in a Unit Trust ("UT"). The UT realizes a capital gain of $1,000. From the UT`s perspective, it has a taxable capital gain of $500 and this amount is included in its income for tax purposes. In accordance with the deed of UT, only the amount of the taxable capital gain ($500) is payable to the RCA trust. The UT claims a deduction of $500 in computing its own income under subsection 104(6) of the Act.
The particular situation outlined in your letter appears to relate to a factual one, involving specific taxpayers. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject of an advance income tax ruling request submitted in accordance with the guidelines established in Information Circular 70-6R5. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
All statutory references in this letter are references to the provisions of the Act, R.S.C. 1985 (5th supp.) c. 1, as amended.
Subparagraph (b)(i) of the definition of "refundable tax" in subsection 207.5(1) reads:
b) 50% of the amount, if any, by which
...
(i) the total of all amounts each of which is the income (determined as if this Act were read without reference to paragraph 82(1)(b)) of an RCA trust under the arrangement from a business or property for the year or a preceding taxation year or a capital gain of the trust for the year or a preceding taxation year,
In the situation you have described, we are of the view that the amount received by the RCA trust which is equal to the amount of the taxable capital gain would be the amount to include under subparagraph (b)(i) of the definition of "refundable tax" in subsection 207.5(1).
We trust that these comments will be of assistance.
Yours truly,
Louise J. Roy
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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