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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Will GAAR apply to a transaction, for purposes of section 206 of the Income Tax Act, where a trust issues debt and the only property held by the trust is 100% foreign?
Position: Yes, GAAR will apply.
Reasons:
In a situation involving debt of a trust, where the property held by the trust is more than 50% foreign property, GAAR will apply.
XXXXXXXXXX 2002-016627
G. Allen
March 31, 2003
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This letter is in reply to your letter dated March 12, 2003 wherein you advised that XXXXXXXXXX wishes to withdraw the above-referenced ruling request. We also acknowledge receipt of your letters dated October 1, 2002 and March 11, 2003, as well as XXXXXXXXXX letters dated November 18 and December 31, 2002 and the information provided in numerous telephone conversations (XXXXXXXXXX/Allen and XXXXXXXXXX/Allen).
As discussed in our telephone conversations, the issue of whether the general anti-avoidance rule ("GAAR") in section 245 of the Income Tax Act (the "Act") will apply to a transaction involving debt of a trust and the foreign property rules in section 206 of the Act has been considered by the Canada Customs and Revenue Agency (the "CCRA") on several occasions. Since debt of a trust is not specifically listed in the definition of foreign property, the technical provisions of the Act are met and we turn to reviewing the relevant tax policy. Taking into account the clear overall purpose of these rules to limit foreign property within registered plans and the additional detail contained in provisions such as paragraphs 206(1.1)(b) and (c) of the Act imposing a substantial Canadian presence test, it is the CCRA's view that it is appropriate to look at the underlying foreign property of a trust in determining whether the relevant tax policy has been abused. Accordingly, in situations involving debt of a trust, we have only ruled favourably where the facts and proposed transactions reflect that more than 50% of a trust's assets will be invested in Canadian property.
We have, as instructed, closed our file. An invoice for the time spent considering the ruling request will be forwarded to you under separate cover.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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