30 November 1995 Ruling 9603073 - QUALIFIED DOMESTIC TRUST

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.

XXXXXXXXXX							960307
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling in respect of the proposed transactions described herein on behalf of the above-noted taxpayers. We also acknowledge receipt of your letters dated XXXXXXXXXX.

To the best of your knowledge and that of the taxpayers involved in this advance income tax ruling request, none of the issues discussed herein is being considered by an office of Revenue Canada in connection with a tax return already filed, and none of the issues is under objection or appeal.

All terms used herein that are defined in the Income Tax Act (the "Act") have the meaning given in such definition unless otherwise indicated, and all references herein to sections, subsections, paragraphs or subparagraphs are references to the Act unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Facts

1.1XXXXXXXXXX passed away on XXXXXXXXXX.

1.2The late XXXXXXXXXX was a Canadian resident as well as a Canadian citizen and he was not a citizen or otherwise a resident of the United States ("U.S.").

1.3The late XXXXXXXXXX by virtue of his Last Will and Testament (a copy of which was forwarded to us), bequeathed all his property (after payment of debts) to his spouse, XXXXXXXXXX.

1.4XXXXXXXXXX the widow of the late XXXXXXXXXX is similarly a Canadian citizen and Canadian resident and she is not a citizen or otherwise a resident of the U.S.

1.5The late XXXXXXXXXX at the time of his death owned shares in U.S. public companies and a XXXXXXXXXX% controlling interest in a U.S. private operating company known as XXXXXXXXXX The value of the securities in the U.S. public companies was approximately $XXXXXXXXXX as at the date of death. The value of XXXXXXXXXX has yet to be determined by a professional valuator; however, it is believed that the value as at the date of death was over $XXXXXXXXXX U.S. The shares in U.S. public companies and XXXXXXXXXX are hereinafter collectively referred to as the "U.S. securities". The U.S. securities were capital property of the late XXXXXXXXXX.

1.6The late XXXXXXXXXX owned other assets located outside of the U.S. which also have yet to be valued by a professional valuator; however, it is believed that such other assets have a value in excess of $XXXXXXXXXX U.S. Accordingly, the total estate in U.S. dollars would be in excess of $XXXXXXXXXX as at the date of death.

1.7The U.S. securities held by the late XXXXXXXXXX at the time of his death have a relatively low cost basis and accordingly such U.S. securities which have an approximate value of $XXXXXXXXXX U.S. will be subject to capital gains taxation in Canada upon the death of XXXXXXXXXX.

1.8As is evident from the above, the current situation is subject to double taxation, in that U.S. estate taxes are now payable (subject to the proposed plan as set out below) by reason of the death of XXXXXXXXXX and Canadian taxes will be payable at a later date upon the death of XXXXXXXXXX with no reduction for the U.S. estate taxes which are currently payable in respect of the death of the late XXXXXXXXXX.

1.9U.S. domestic tax legislation will permit the deferral of U.S. estate taxes until the time of death of a surviving spouse such as XXXXXXXXXX This can be accomplished by the surviving spouse transferring the U.S. securities to a qualified domestic trust ("QDOT") under Section 2056A(a) of the Internal Revenue Code of 1986 as amended (the "Code").

1.10Under Section 2056A(b) of the Code, U.S. estate tax is imposed on:

(a) any distribution made by a QDOT to the surviving spouse (other than an income distribution or distribution on account of hardship); and

(b) the fair market value of the QDOT's assets on the date of death of the surviving spouse.

Other Information

2.1The Estate of the late XXXXXXXXXX has not yet had a fiscal year end and thus has not yet filed a tax return.

2.2The late XXXXXXXXXX and XXXXXXXXXX filed their most recent tax returns with the XXXXXXXXXX Tax Services Office.

2.3The social insurance number of the late XXXXXXXXXX and the social insurance number of XXXXXXXXXX

2.4The executors of the Estate of the late XXXXXXXXXX are XXXXXXXXXX

Proposed Transactions

3.1XXXXXXXXXX will transfer registered title of a portion of the U.S. securities (the "U.S. Securities") to a U.S. financial institution (the "Trustee") to hold as trustee for the sole and exclusive benefit of XXXXXXXXXX The arrangement between XXXXXXXXXX and the Trustee will be structured so that it will qualify as a QDOT. The draft QDOT agreement forwarded to us includes the following terms:

XXXXXXXXXX.

3.2An election for the aforesaid arrangement to be treated as a QDOT will be made by the executors of the Estate of the late XXXXXXXXXX.

Purpose of the Proposed Transactions

4.1The purpose of the proposed transactions is to permit the deferral of U.S. estate tax until the time of death of XXXXXXXXXX and to put XXXXXXXXXX in a position where her Estate will be able to claim a foreign tax credit for any U.S. estate tax which may be imposed upon the value of the U.S. Securities at the time of her death.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, the proposed transactions and the purpose thereof and the proposed transactions are carried out in the manner described above, we confirm the following:

1.Pursuant to paragraph (e) of the definition of disposition in section 54, the transfer of registered title of the U.S. Securities to the Trustee of the QDOT will not result in a disposition of those securities by XXXXXXXXXX.

2.Any income or loss from the U.S. Securities and any taxable capital gain or allowable capital loss from the disposition of the U.S. Securities will be considered to be the income or loss, as the case may be, or taxable capital gain or allowable capital loss, as the case may be, of XXXXXXXXXX during her lifetime.

3.Upon the death of XXXXXXXXXX and unless subsection 70(6) is applicable, she will be deemed in accordance with subsection 70(5) to have disposed of the U.S. Securities for proceeds equal to their fair market value immediately before her death.

4.In accordance with Article XXIX B(6)(a) of the Canada - United States Income Tax Convention, the amount of any federal or state estate or inheritance taxes which are imposed upon XXXXXXXXXX death and payable in the U.S. by the Trustee of the QDOT in respect of the U.S. Securities will be allowed as a deduction from the amount of any Canadian tax otherwise payable by XXXXXXXXXX for the taxation year in which XXXXXXXXXX dies in respect of any gain arising from the deemed disposition of the U.S. Securities pursuant to subsection 70(5).

5.As a result of the proposed transactions, in and of themselves, subsection 245(2) will not be applied to redetermine the tax consequences as set out above.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R2 dated September 28, 1990 and are binding provided that the transfer of registered title of the U.S. Securities to the Trustee of the QDOT is competed on or before XXXXXXXXXX.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch