7 October 1990 Income Tax Severed Letter - Adjusted Cost Base of Capital Interest in a 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.

Dear Sirs:

This is in reply to your letter dated March 2, 1990 in which you requested technical interpretations of subsections 48(3) and 107(2) of the Income Tax Act (the "Act") in the following situation.

We are to assume

• (a) Mr. A is a non-resident of Canada.
• (b) Mr. A. is a beneficiary of a non-resident trust that is a "personal trust" within the meaning assigned by subsection 248(1) of the Act.
• (c) Mr. A. intends to immigrate to Canada during the 1990 calendar year and become a resident of Canada. The trust would not become a resident of Canada.
• (d) Mr. A.'s original cost of his capital interest in the trust is $250,000. This also represents the acquisition cost to the trust of the property acquired.
• (e) The fair market value of Mr. A.'s share of the trust assets, when he becomes resident in Canada, will be approximately $10,000,000.
• (f) After Mr. A. becomes resident in Canada, the trust will distribute capital property to him, in satisfaction of his capital interest, as per the provisions of subsection 107(2) of the Act.
• (g) Further, we assume that the exclusion in paragraph 48(3)(c) of the Act does not apply to Mr. A.

In particular, you requested that we confirm the following relevant interpretations of subsections 48(3) and 107(2) of the Act.

• 1) The adjusted cost base ("ACB") to Mr. A. of his capital interest in the trust immediately after entering Canada will be $10,000,000 (approx.).
• 2) The cost amount to Mr. A. of his capital interest in the trust will be $250,000.
• 3) The ACB to Mr. A. of the capital property distributed from the trust to him will be $10,000,000 (approx.).

In our view subsection 48(3) of the Act, rather than subsection 107(1.1) therein, would apply in determining the ACB of Mr. A.'s capital interest in the non-resident trust at the time he becomes a resident of Canada. The ACB of his capital interest in the trust will, in your example, be equal to its fair market value of $10,000,000 (approx.) at that time.

The cost amount to Mr. A. of his capital interest in the non-resident trust would be determined under subparagraph 108(1)(d)(i) or (ii) of the Act, as the case may be. Accordingly, such cost amount may, depending upon the facts, be derived solely from the cost amount to the trust of certain capital property in the trust. Also, we are unable to confirm the quantum of the ACB of property distributed by the trust to Mr. A under paragraph 107(2)(b) of the Act since subparagraph (ii) thereunder refers to the cost amount of his capital interest in the trust the determination of which, as indicated above, is a question of fact.

Should you have a specific case under consideration we suggest that you request a ruling.

We trust that our comments will be of assistance to you.