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.
Principal Issues: Whether S is an unrelated person (within the meaning of paragraph 55(3.01)(a)) in respect of Jcorp.
Position: Yes.
Reasons: The provisions of subparagraphs 55(5)(e)(ii) and (iii) would suggest that for the purposes of section 55 of the Act, a reference to a trust should be a reference to the trust as a person and not the trustees personally.
2000-004372
XXXXXXXXXX Karen Power, C.A.
(613) 957-8953
Attention: XXXXXXXXXX
December 20, 2000
Dear Sirs:
Re: Unrelated Persons for the Purposes of Section 55
We are writing in reply to your letter of August 23, 2000 wherein you requested our opinion on whether a person is related to a particular corporation for purposes of section 55 of the Income Tax Act (the "Act").
The situation in your letter may be briefly restated as follows:
1. S is one of three trustees of a personal trust ("J Trust"). The other two trustees of J Trust are J (S's father) and V (S's mother).
2. The J Trust beneficiaries are the children and grandchildren of J and V. S is a beneficiary under the Trust, as are S's brothers and sisters.
3. At the relevant time, the shareholders of Jcorp are J(non-voting) and the J Trust (voting) (the Jcorp voting shares are held by the trustees of the J Trust).
4. Pursuant to the J Trust, decisions must be by majority vote; however, J must be in that majority for such a vote to be effective. Additionally, pursuant to the J Trust, if there are an equal number of votes for and against a proposition, J has a second casting vote.
It is your view, that S is related to Jcorp for the purpose of section 55, notwithstanding that he is deemed not to be related to the J Trust by virtue of subparagraphs 55(5)(e)(ii) and (iii).
Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R3 (IC-70-6R3) dated December 30, 1996. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. We can, however, provide the following general comments.
For the purposes of determining whether a person is an "unrelated person" within the meaning of paragraph 55(3.01)(a) in respect of a dividend recipient where a trust is involved it is necessary to consider the application of paragraph 55(5)(e). In our view, the provisions of subparagraphs 55(5)(e)(ii) and (iii) would suggest that for the purposes of section 55 of the Act, a reference to a trust should be a reference to the trust as a person and not the trustees personally. Moreover, the recent proposal in the June 5, 2000 Notice of Ways and Means Motion to amend subsection 104(1), in our view, merely clarifies that a reference to a trust in subsection 55(5) would be that of the trust arrangement itself and not the trustees.
In the above situation, Jcorp is a corporation controlled by the J Trust and would for the purposes of section 55, therefore, be related to the J Trust pursuant to subparagraph 55(5)(e)(iii). Since S is deemed pursuant to subparagraphs 55(3)(e)(ii) and (iii) not to be related to the J Trust for the purposes of section 55 (i.e. because he is deemed not to be related to his brothers and sisters who are beneficiaries of the trust), he would not be related to Jcorp which is controlled by the J Trust (i.e. for the purposes of subparagraph 251(2)(b)(iii) as it applies for the purposes of section 55, S would not be related to the person who controls Jcorp). S would, therefore, be an unrelated person in respect of Jcorp.
We trust our comments will be of assistance to you. However, as noted in Information Circular 70-6R3 issued on December 30, 1996, the above comments are not binding on the Canada Customs and Revenue Agency.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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