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.
Minister (2) 94-01023M
Deputy Minister 940782
Central Records
File
Return to Client Assistance Directorate,
Correspondence Section
400 Cumberland, Room 8004
June 15, 1994
XXXXXXXXXX
:
The Honourable David Anderson, Minister of National Revenue, has asked me to respond to your letter of December 28, 1993, which was forwarded to him on February 3, 1994, by the Honourable Paul Martin, Minister of Finance, concerning the application of the 21 year deemed realization rule. I apologize for the delay in responding, and I regret that my reply of September 15, 1993, did not fully address your concerns.
As indicated in my previous letter, the 21 year deemed realization rule (21 year rule) was introduced in 1972 to prevent the use of trusts to indefinitely defer the recognition of capital gains. The first deemed realization date of a trust, except for certain trusts created for the benefit of a spouse (spousal trusts) and trusts not subject to the 21 year rule, is the day that is 21 years after the later of January 1, 1972, and the day the trust was created. Bill C-92 provided that a trust may elect to defer what would otherwise be the date of the deemed realization if, as explained in my earlier letter, there is a living exempt beneficiary. This election can only be made in respect of deemed realizations that would otherwise occur after February 11, 1991, and must be made within six months after the end of the taxation year of the trust that includes the date that would otherwise be the date of the deemed realization.
Departmental officials have advised me that form T1015, "Election by a Trust to Defer the Deemed Realization Day," has been available in all district offices and processing centres since August 1993, shortly after Bill C-92 became law. The unavailability of the form before that time would only have affected a limited number of spousal trusts. If representatives of that type of trust had contacted the Department, they would have been advised that the election could be made by attaching to the T3 trust return a letter containing the relevant information.
You also ask if there are any exemptions applicable to the 21 year rule since the $100,000.00 exemption has been withdrawn. Bill C-92 provided that the $100,000.00 capital gains deduction would no longer be available to offset taxable capital gains arising on the disposition of certain real property purchased after February 1992, and restricted the deduction for real property purchased before March 1992. Except in certain limited circumstances, the capital gains deduction has never been available to a trust to offset its taxable capital gains. When a taxable capital gain arises in a trust, the trust may have the option of designating that amount to be a taxable capital gain of the beneficiaries of the trust. If so designated, the gain would be subject to the rules pertaining to the capital gains deduction.
In your letter, you refer to land designated as an ecological preserve. There are no provisions in the Income Tax Act specifically relating to such land. However, if such land is held by a trust and that trust is a non-profit organization or a registered charitable organization, the trust is exempt from paying income tax. Therefore, the application of the 21 year rule to such a trust will have no income tax consequences.
I would explain that generally, where the income of a trust is subject to income tax, its T3 trust return must be filed within 90 days from the end of the trust's taxation year. A trust set up to hold land as an ecological preserve would normally be the type of trust with a taxation year ending on December 31 of each year. As such, its 1993 T3 trust return would have to be filed by March 31, 1994. Where a trust return is not filed on time, it may be subject to a late filing penalty and interest charges. However, if you filed late or will file late due to the delay of my reply, I invite you to contact:
Mr. R.G. Burke
Assistant Director, Client Assistance
Calgary District Taxation Office
220 - 4th Avenue South East
Calgary, Alberta
T2G OL1
to have the interest and penalty reviewed. He may be reached by telephone at 691-6873 or, if long distance, by telephoning 0-403-691-6873 collect. Mr. Burke is aware of our correspondence and would be pleased to assist you.
I trust that the information provided is helpful. Should you require any further information, please contact me.
Yours sincerely,
Pierre Gravelle, Q.C.
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