(2)-(35)

Table of Contents

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Under-the-will requirement where varied (p. 173)

It is the CRAs view that a trust is not created under a taxpayer's will when the trust is created under provincial variation-of-trusts legislation, or through agreement of the beneficiaries of the taxpayer's estate. [F.n. 165 - IT-305R4…at paragraph 12.] Similarly, the CRA believes that an otherwise tainted spousal trust cannot be cured through a disclaimer by a non-spouse beneficiary after death. [F.n. 166 - There is an argument that the CRA's views, in this regard are incorrect, since a disclaimer of a beneficial interest in a trust makes the interest void ab initio.] The CRA's position is based on its view that an agreement of the beneficiaries or an order under variation-of-trusts legislation cannot be made retroactively to amend the terms of a will. The decisions of the Tax Court in Murphy Estate… [F.n.167 2015 TCC 8], and… in Shinewald v. Putter … [F.n.168 2014 MBQB 254] appear to support the CRA's position.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(d) 437
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) - Subparagraph 251.1(1)(g)(ii) 115
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 141
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(3) - Paragraph 251.2(3)(b) 112
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d.1) 161
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 1201
Tax Topics - Treaties - Articles of Treaties - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) 199
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(6) 174
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) 144
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379

Subsection 248(2) - Tax payable

Cases

R. v. Simmons, 84 DTC 6171 (Nfld. Prov. Ct.)

"[O]n the point raised by Mr. Sopinka that the charges were premature ... I will follow the Myers case (R. v. Myers and Inter Publishing Co. Ltd., 35 C.C.C.(2d)1) 'that a tax is imposed whether or not an assessment or reassessment is made'." (Charges apparently were laid before the accused was assessed for the unreported income.)

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 244 - Subsection 244(4) 35

Subsection 248(3) - Property subject to certain Quebec institutions and arrangements

Cases

Canada v. Construction Bérou Inc., 99 D.T.C 5869 (FCA)

Létourneau J.A. found (at p. 5872) that s. 248(3) "is intended to treat beneficial ownership of property in the same way as various forms of ownership recognized in the civil law of Quebec."

Administrative Policy

13 April 2015 External T.I. 2012-0449141E5 F - Usufruct

application of trust provisions to creation of usufruct

A corporation sold the usufruct respecting a property to an arm’s length third party for use as a secondary residence, while retaining the bare ownership, and with the usufruct ending when the bare owner redeemed the rights belonging to the usufructuary. CRA provides a general discussion of the application of the Act to the deemed contribution of property to a trust of which the bare owner and usufructuary are the beneficiaries, and of the application of s. 107(2.1) to the winding up of the trust in connection with the termination of the usufruct.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2) 75(2) applies to termination of usufruct 168
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2.1) 107(2.1) application to termination of usufruct created for valuable consideration 124

Paragraph 248(3)(a)

Administrative Policy

20 April 2017 External T.I. 2016-0672501E5 F - Usufruct and Use of capital of a trust by a spouse

deemed spousal trust created through will

The will of the Quebec deceased bequeathed the usufruct of rental property to his spouse and the bare ownership to his adult child, thereby giving rise to a deemed trust under s. 248(3) (the “Trust”), and a mooted spousal trust. CRA stated:

[W]here the will provides that no person other than the deceased's spouse or common-law partner may, before death, receive any part of the income or capital of the Trust or otherwise obtain the use thereof… the fact that the will does not prevent the bare owner from disposing of his or her right should not, in and of itself, cause the condition in subparagraph 70(6)(b)(ii) to not be met.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(b) - Subparagraph 70(6)(b)(ii) right of the bare owner of property, subject to a usufruct in favour of a surviving spouse, to dispose of his bare ownership does not preclude a spousal trust 145

Subsection 248(4) - Interest in real property

Administrative Policy

16 March 2015 Internal T.I. 2013-0479861I7 - Section 116 & forfeited deposits on real property

forfeited sale deposit was proceeds of security interest rather than of tcp

A non-resident vendor received a deposit under an agreement for sale of B.C. real property, which will be forfeited to it due to failure of the purchaser to close. Is the deposit subject to s. 116 withholding?

CRA first stated (based on the s. 248(1) – "disposition" definition) that "there is a disposition of a right under a contract where an agreement of sale has been cancelled and the buyer's deposit is forfeited to the vendor," and noted that under s. 248(4) "where the property is a security interest derived by an agreement for sale, it is excluded from being an interest in real property and is thereby excluded from the definition of taxable Canadian property." Before referring to Howe v. Smith (1884), 27 Ch D 89 and Tang v. Zhang, 2013 BCCA 52, CRA stated that "at common law, a deposit in respect of an agreement for the sale of real property has been viewed as an earnest or security for the performance of the purchase and sale, unless there is evidence that the contract requires otherwise," and then concluded that on forfeiture of the deposit:

there would be a disposition of a security interest derived by virtue of an agreement for sale or similar obligation. Since the property disposed of would not be an interest in real property for the purposes of the Act, it would not be taxable Canadian property and would not be subject to the application of section 116.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 116 - Subsection 116(5) forfeited sale deposit was proceeds of security interest rather than of tcp 235
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition - Paragraph (b) forfeited sale deposit was proceeds 77

13 September 2012 CICA Compliance Roundtable, 2012-0453021C6 - Taxable Canadian Property

Respecting a question as to whether shares of an unlisted corporation would be taxable Canadian property if during the preceding 60 months "most of the value of the corporation's shares was derived directly from assets consisting of non-defaulted arm's length mortgages secured by real property situated in Canada," CRA stated:

An interest in real property derived from a non-defaulted arm's length mortgage secured by real property is generally limited to an interest as security only, and subsection 248(4) of the Act clarifies that for the purposes of the Act, an interest in real property does not include an interest as security only derived by virtue of a mortgage. Therefore, CRA is of the view that the fact that at some time during the 60-month period that ended at the determination time, most of the value of the shares of a corporation that is not listed on a designated stock exchange was derived directly from assets consisting of non-defaulted arm's length mortgages secured by real property situated in Canada, would not result in a share of that corporation being TCP. However, if the rights of a particular mortgagee were different from those described in subsection 248(4) of the Act, we would need to examine all of the facts and circumstances relating to that particular mortgage before taking a final position....

2001 Ruling 2001-008388 -

A mortgage bond secured by a leasehold interest in land would constitute a mortgage secured by real property situated in Canada in light of s. 248(4).

18 January 1993 External T.I. 5-921718 -

A three-year second mortgage loan, bearing interest at 11% per annum, made by a non-resident to a Canadian partnership provided that on maturity the lender would receive, in addition to principal and interest, 10% of the increase in the value of the building, if any, over the three-year term as determined by independent appraisal. In concluding that any disposition of the loan during the term of the loan would be a disposition of "real property situated in Canada" for purposes of s. 115(1)(b), the Department indicated that "the non-resident's interest in the building, which includes a right to participate in the appreciation of the building, is not 'an interest as security only' for purposes of s. 248(4), so that the mortgage loan was an interest in real property.

December 1990 TI 1990-240

In light of s. 248(4), leasehold improvements to a leasehold interest would, if rented, be considered to give rise to income from real property for purposes of the specified investment definition.

15 January 1987 TI 7-1282

Although s. 248(4) deem leases (in this case grazing leases on Crown lands) to be interest in real property, the definition of qualified farm property in s. 110.6(1) referred only to real property and, therefore, did not include a leasehold interest.

Subsection 248(5) - Substituted property

Cases

Canada v. Sommerer, 2012 DTC 5126 [at 7219], 2012 FCA 207

In determining whether s. 75(2) should apply to the taxpayer, Sharlow J.A. stated (at para. 46):

This provision must be read together with paragraph 248(5)(a) of the Income Tax Act, which provides, broadly speaking, that for the purposes of most provisions of the Income Tax Act, the notion of the substitution of property contemplates any number of substitutions.

The Court proceeded to find on other grounds that s. 75(2) did not apply.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) Austrian foundation likely not a trust 175
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2) does not apply to FMV purchases 230
Tax Topics - Treaties treaty applies to economic double taxation 338
Tax Topics - Treaties - Articles of Treaties - Article 13 attributed gain not included 393

See Also

St-Pierre c. La Reine, 2008 DTC 3730, 2007 TCC 90

The taxpayer transferred shares of a corporation ("3101") to a management company controlled by him and the management company disposed of a portion of those transferred shares to the taxpayer's wife approximately a year later. Approximately half a year after that, the taxpayer's wife exchanged her shares of 3101 for shares of another class of 3101, following which 3101 was merged with another corporation and the taxpayer's wife disposed of her shares of the merged company to a purchaser at a capital gain.

Tardif J. found that the shares of the merged company were substituted property for the shares that the taxpayer had transferred to the management company and stated (at para. 38) that "there is no basis to hold that there has to be a series of interrelated operations here".

Administrative Policy

22 June 2016 Internal T.I. 2016-0632821I7 F - 93(2.01) & Capital Contribution

ordinary meaning of “substituted”

Canco contributed (for no share consideration) its shares of a non-resident Finco subsidiary (Luxco2 – which previously had paid exempt dividends to Canco) to another wholly-owned subsidiary (Luxco1). CRA found that s. 93(2.01) denied a subsequent capital loss realized on an arm’s length sale of the Luxco1 shares to the extent of such dividends, on the grounds that the shares of Luxco1 were substituted shares for those of Luxco2. The Directorate stated:

The concept of "substituted share" in subsection 93(2.01) must in our view be given its ordinary meaning, taking into account inter alia that the interpretive rule in subsection 248(5) does not stipulate a definitive meaning for this concept for the purposes of the Act.

Words and Phrases
substituted
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 93 - Subsection 93(2.01) a contribution of FA1 shares to FA2 causes the FA2 shares to be substituted property for s. 93(2.01) purposes 183
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a) - Subparagraph 95(2)(a)(ii) - Clause 95(2)(a)(ii)(B) inter-affiliate loan generating deemed active business funded out of an interest-free loan from Canco 103

25 September 2013 Internal T.I. 2013-0476311I7 F - 93(2), 93(2.01) - Share substituted

In the course of reviewing the facts summarized under s. 93(2.01), CRA stated (TaxInterpretations translation):

Subsection 248(5) contemplates rules of interpretation which establish the scope of the concept of substituted property for purposes of the Act. Paragraph 248(5)(a) circumscribes this concept in referring to a property acquired in a disposition or exchange of a given property, so that the latter property is the subject of a legal transaction. The second part of paragraph 248(5)(a) expands the scope of this concept in envisaging an indeterminate number of substitutions, establishing a link between the initial property under consideration and the property acquired in the final substitution. …

In this case, the XX A Shares of USCO1 were issued in the course of a legal transaction which did not involve in any way the interest in LLC1 or a property acquired in replacement for such interest.

10 May 2013 Internal T.I. 2012-0464901I7 - 93(2), 93(2.01) - Share substituted

Canco owns all the shares of Forco1, which it transfers to Forco2 for a promissory note payable in U.S. dollars, and then transfers the note to Forco3 in exchange for shares of Forco3. In finding that such shares of Forco3 were substituted for the shares of Forco1, CRA indicated that the concept of "share substituted" was not restricted "to a chain of substitutions in which only shares are substituted."

6 April 1992 T.I. 920265 (March 1993 Access Letter, p. 71 ¶C56-218; Tax Window, No. 18, p. 1, ¶1852)

Where, in 1978, a taxpayer transferred property to his spouse who, in turn, transferred the property to a holding company for preferred shares and also subscribed for common shares, the attribution rules may apply to the sale of the common shares by the spouse.

15 January 1992 T.I. (Tax Window, No. 15, p. 12, ¶1700)

Where a minor son received shares from his father on a rollover basis pursuant to former s. 73(5), realizes an exempt capital gain on a later disposition of those shares and invests the proceeds in GIC's, the interest on the GIC's (including the interest on the portion relating to the exempt capital gain) would fall within the definition of substituted property, with the result that s. 74.1(2) will apply to attribute the interest income back to the father.

Subsection 248(6) - “Class” of shares issued in series

See Also

Bowater Canadian Ltd. v. R.L. Crain Inc. (1987), 62 OR (2d) 752 (C.A.)

The articles of amalgamation of the corporation provided for common shares, and for "special common shares" which were entitled to ten votes per share as long as such shares were held by the person to whom they originally were issued, and thereafter to one vote per share. The "step-down" provision in the special common shares provisions was found to violate the principle (implicit in s. 24(3) of the Canada Business Corporations Act) that there must be equality of rights within a class of shareholders. Accordingly, the step-down provision was found to be void, with the result that the special common shares continued to carry ten votes per share following their transfer.

Subsection 248(7) - Receipt of things mailed

See Also

Canada v. Schafer, 2000 DTC 6542 (FCA)

A notice of assessment that the trial judge found the respondent had never received was deemed by s. 334(1) of the ETA to have been received by her on the date of mailing.

Sameden Oil of Canada, Inc. v. Provincial Treasurer of Alberta (1993), 102 DLR (4th) 125 (Alta. C.A.)

The taxpayer mailed his 1988 corporate tax return by registered mail from the United States on June 30, 1989, and the return was received by the respondent on July 13, 1989. In finding that the taxpayer had not complied with the requirement in the Alberta Corporate Tax Act that the return be filed with the Provincial Treasurer by June 30, 1989, the Court of Appeal affirmed the finding of Rawlins J. that the word "filed" is "clear and unequivocal and connotes the requirement of actual delivery before filing and therefore a mailed document is not considered 'filed' until it is received and not at the point of mailing".

Words and Phrases
file

Rolling v. Willann Investments Ltd. (1989), 63 DLR (4th) 760 (Ont CA)

An offer was considered to have been "delivered" to a person ("Willann") when it was faxed to Willann:

"Where technological advances had been made which facilitates communications and expedite the transmission of documents we see no reason why they should not be utilized. Indeed, they should be encouraged and approved. Nothing is to be gained in the circumstances of this case in requiring an attendance at Willann's offices to deliver the documents, and Willann suffered no prejudice by reason of the procedure followed."

Subsection 248(8) - Occurrences as a consequence of death

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Effect of disclaimer or release (pp. 177-8)

Under the common law, a disclaimer means a refusal to accept a gift or other transfer of property. …

A beneficiary who executes a valid disclaimer in respect of property to be received under a will is considered never to have received the property. [F.n.184 … S6-F2-C1, paragraph 1.10].

When a person executing a disclaimer receives consideration, a question can arise whether the disclaimer is valid. ..

In the common-law provinces and territories, a release or surrender refers to an extinguishment or discharge of a right to property. …

If property is disclaimed, released, or surrendered, do the executors have the power under the terms of a will to transfer the property to a spousal trust? The executors should have this power if the will provides that the residue of the estate is to be paid to the trust, or if the executors have discretion to add property to the spousal trust. …

If the will does not give executors authority to deal with a disclaimer release, or surrender, the courts generally attempt to give effect to the testator's intent and make gifts or distributions that are consistent with the overall spirit of the will.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(d) 437
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) - Subparagraph 251.1(1)(g)(ii) 115
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 141
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(3) - Paragraph 251.2(3)(b) 112
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d.1) 161
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 1201
Tax Topics - Treaties - Articles of Treaties - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - (2)-(35) 157
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(6) 174
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) 144
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379

Paragraph 248(8)(a)

See Also

Bueti v. The Queen, 2015 DTC 1213 [at 1374], 2015 TCC 265

residuary beneficiary did not acquire as a consequence of death

Owen J made a factual finding that a particular property (a house in the estate of the taxpayer's father) was purchased for cash consideration by her and her husband, as joint tenants, rather than being devised to her under her father's will. Accordingly, her and her husband's cost of the property was their cash purchase price rather than being deemed by s. 70(5)(b) to be its higher fair market value at the time of their purchase.

Before so concluding, he observed that, under the laws of Ontario, residuary beneficiaries do not acquire an interest in any specific property in the residue of the estate and it is instead the residuary property is vested in the executors. Neither counsel mentioned s. 248(8)(a). See summary under s. 70(5).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership residuary beneficiary had no ownership of estate property 94
Tax Topics - Income Tax Act - Section 70 - Subsection 70(5) residuary beneficiary did not acquire as a consequence of death 224

Husel Estate v. The Queen, 94 DTC 1765 (TCC)

Kempo TCJ. found (at p. 1769) that s. 248(8)(a) was added "to obviate the denial of a rollover in situations where an individual, qua beneficiary, acquired estate property upon payment of consideration to satisfy the terms of a testamentary condition or instrument". Here, however, the transfer of shares to the wife of the deceased did not occur as a consequence of the death of the deceased because the transfer occurred pursuant to what was viewed as an independent purchase transaction.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 49

Administrative Policy

6 June 2017 External T.I. 2015-0617331E5 F - TFSA - Exempt Contribution

legacy of residue (which included the residence) could be satisfied with TFSA of deceased

CRA indicated, similarly to 2016-0679751E5 F, that in light inter alia of s. 248(8)(a), a payment could be considered to be made to a surviving spouse directly or indirectly out of the former TFSA as a consequence of the deceased’s death where an executor in his discretion chooses to satisfy a legacy of specific property (in this case, of the residue of the estate, which included the family residence) by retaining the proceeds from the sale of the residence and instead paying an equivalent amount out of TFSA property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Exempt Contribution - Paragraph (b) payment of family-law debt out of TFSA to surviving spouse would occur as a consequence of the deceased’s death 298
Tax Topics - Income Tax Act - Section 248 - Subsection 248(23.1) - Paragraph 248(23.1)(a) payment of family-law obligation of deceased to surviving spouse out of deceased's TFSA could qualify 79

11 May 2017 External T.I. 2016-0679751E5 F - TFSA - Exempt Contribution

legacy made by executor exercising discretion conferred under will occurred because of death

The definition of “survivor payment” in s. 207.01(1) - exempt contribution – para. (b) references a payment to the survivor directly or indirectly out of the former TFSA because of the deceased’s death.

CRA considered that these requirements could be satisfied (in light inter alia of s. 248(8)(a)) where an executor in his discretion chooses to satisfy a specific legacy out of TFSA property, rather than this being spelled out in the will.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Exempt Contribution - Paragraph (b) a “survivor payment” can be made out of the deceased’s TFSA even where this occurs in the executor’s discretion 196

10 June 2016 STEP Roundtable Q. 10, 2016-0645781C6 - US Revocable Living Trusts

remainder beneficary of inter vivos trust

A U.S. resident (the “grantor”) settles a “revocable living trust” with property including taxable Canadian property. The grantor: is the sole trustee; until death is the sole beneficiary with rights to income and any encroachments of capital; and may revoke the trust at any time. The trust provisions may provide for a distribution of the trust property to named beneficiaries upon the death of the grantor. Would a Canadian resident who is a remainder beneficiary be considered to have “acquired” the capital interest from the decedent at a cost equal to its fair market value immediately prior to the death of the grantor?

CRA indicated that the capital interest of the remainder beneficiary would have been acquired as a consequence of the terms of the trust and not as a consequence of the death of the settlor, so that s. 70(5)(b) would not apply to determine the adjusted cost base of the remainder beneficiary’s capital interest in the trust.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) U.S. revocable living trust is not a bare trust 155
Tax Topics - Income Tax Act - Section 70 - Subsection 70(5) transfer to remainder beneficiary of a U.S. revocable living trust on death does not occur as a consequence of death 122

16 December 2014 External T.I. 2014-0539841E5 F - Testamentary Trust

subsequent will-directed transfer from spousal trust to residue trust occurred as consequence of death

Would a trust created by will in favour of the child of the deceased (the "Child Trust") cease to qualify as a testamentary trust in the year of operation of a clause in the will directing that a trust created by the will for the exclusive benefit of the deceased's spouse (the "Spousal Trust") to pay over the residue to the Child Trust on the spouse's death? After referring to s. 248(8)(a), CRA stated:

[T]o the extent that all the property contributed to the Child Trust by the Spousal Trust originated from the deceased and such transfer was effected pursuant to clear directions expresssly stipulated in the deceased's will, we are of the view that the Child Trust can retain its status as a testamentary trust... . Thus, a contribution of property to a trust by a deceased contributor which takes effect at a date subsequent to the deceased's death, such as a contribution of property to the trust following the death of a surviving spouse, generally would not disqualify the trust as a testamentary trust.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(1) - Testamentary Trust transfer from one testamentary trust to another pursuant to a will direction treated as a non-tainting contribution from the deceased 144

12 June 2012 STEP CRA Roundtable, 2012-0442931C6 - 2012 STEP Question 8

trusts established out of residue

In the situation where the estate trustees are instructed under the Will to set up a number of trusts from the residue of the estate, CRA "generally has viewed the trusts created out of the residue as arising on death."

11 January 2012 STEP Roundtable, 2011-0402291C6 - Subsection 248(8)-Intestacy-Transfer of Property

Where a taxpayer dies intestate, then provided the property of the deceased is distributed to the beneficiaries in accordance with the shares specified in the applicable provincial law of intestacy, such property will be considered to have been distributed as a consequence of the deceased's death per s. 248(8) even if each type of property is not distributed on a pro rata basis among the beneficiaries. For example, it would be permissible for a surviving spouse to receive, in accordance with such provincial law, all of an RRSP of the deceased that was included in the estate, in order to access the s. 60(l) rollover.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(l) 104
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) non pro rata allocations to beneficiaries 120

5 May 1995 T.I. 950098 (C.T.O. "Assumption of Liabilities")

A transfer of shares of a private corporation made to the surviving spouse after her agreement to assume liabilities of the estate and provide security therefor would not be considered a transfer "under or as a consequence" of the terms of the will of the taxpayer but, rather, as the result of the agreement between the executors and the surviving spouse.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 66

17 August 1994 T.I. 941053 (C.T.O. "Trusts - 'As a Consequence of the Taxpayer's Death'")

A discretion accorded by the will to the executors to determine the particular assets to be distributed to the spouse or spousal trust of the deceased would not, by itself, cause the rollover in s. 70(6) not to be available.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 39

Articles

Hoffstein, Lee, "Restructuring the Will and the Testamentary Trust: Methods, Underlying Legal Principles and Tax Considerations", Estates and Trust Journal, Volume 13, 1993, p. 42.

Paragraph 248(8)(b)

Cases

Biderman v. The Queen, 2000 DTC 6149, 2001 FCA 269 (FCA)

purported disclaimer was release or surrender

The taxpayer, who had tax debts on his death, made an "informal" disclaimer of his beneficial interest under the estate of his wife five days prior to her death (which was found to be invalid because the common law required that a disclaimer be made after the death of the legator) and, three years after her death, made a formal disclaimer. The formal disclaimer was found to operate as a surrender and release, rather than a disclaimer, because his conduct subsequent to her death was inconsistent with a disclaimer. Accordingly, the purported formal disclaimer acted as a transfer of property by him to the beneficiaries (his and her children).

Létourneau J.A. went on to note that because a disclaimer does not involve the vesting and divesting of property but, rather, operates by way of retroactive avoidance of a devise, s. 160 would not have applied if there had been a valid disclaimer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) conduct subsequent to death inconsistent with disclaimer 146

See Also

Ginsburg v. MNR, 92 DTC 1774 (TCC)

backdated renunciation was ineffective

The taxpayer was entitled under the will of her late husband to all the income from the residue of his estate under a spousal trust, and received various distributions from the spousal trust. The trust, which was subject to a lower rate of tax than she, reported the trust income and it was not reported as her income. Following a proposal by the Minister, over six months following the death of the taxpayer’s husband, to assess the taxpayer for trust income, she executed a form purporting to confirm that she had disclaimed her entitlement to income from the trust – and took the position that the distributions to her were of taxed capital.

In rejecting the validity of the disclaimer, Christie ACJ noted that, in contrast to Herman v. MNR, 61 DTC 700. she had received five payments over the course of seven years from the trust and had not provided an unequivocal renunciation in writing shortly after her husband’s death.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) income payable even before amount ascertained 234

Sembaliuk v. Sembaliuk (1984), 43 R.F.L. (2d) 425 (Alta. C.A.)

disclaimer

"[A] disclaimer, being an avoidance of a gift, is not a conveyance of the property comprised in that gift."

Montreal Trust Co. v. Matthews, [1979] 3 WWR 621 (BCSC)

disclaimer

"A disclaimer can be made by deed, writing, under hand only or even as a result of contract, as any document is admissible so that evidence of the disclaimer is available. A disclaimer may even be evidenced by conduct ... A disclaimer once made is retroactive to the date of death of the deceased."

Administrative Policy

10 April 1997 T.I. 970618

Where children surrender (as defined in s. 248(9)) their interest in an RRSP and the surviving spouse (their mother) thereby acquires an interest in that property, it will be considered to have become receivable by the spouse "as a consequence of the death" by virtue of s. 248(8)(b).

9 March 1992 T.I. (Tax Window, No. 17, p. 9, ¶1788)

Discussion of factors relevant to determining whether a transfer of rights under a will by a beneficiary is a true disclaimer, release or surrender.

8 March 1991 T.I. (Tax Window, No. 1, p. 21, ¶1152)

An election under the Family Law Act (Ontario) by a surviving spouse is a disclaimer for purposes of s. 248(8)(b), with the result that the spousal rollover will be available for property transferred to the surviving spouse in satisfaction of the election if the transfer is made under a court order.

22 February 1990 T.I. (July 1990 Access Letter, ¶1348)

IT-385R, para. 6, continues to reflect RC's position where a taxpayer renounces any part of his income interest in a trust subsequent to having accepted funds from the trust in respect of that interest.

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Beneficiaries Resident in Canada", Chapter 4 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016.

Requirements for valid disclaimer of income interest (p. 340)

A taxpayer who executes a valid disclaimer of an income interest in a trust is generally considered not to have acquired the income interest….In order-to constitute a valid disclaimer for these purposes, the CRA's position is that the refusal must occur within a reasonable time after the recipient becomes aware of the gift or interest and before the recipient accepts any funds or benefits in respect of the gift or interest. However, if die taxpayer accepts any funds from the trust in respect of die income interest or executes a disclaimer in respect of the income interest in favour of another- person, the taxpayer is considered to have acquired the income interest and therefore cannot execute a valid disclaimer. [fn 174: [S6-F2-C1], at paragraphs 1.13 to 1.15. The CRA's position in this regard appears to be inconsistent with judicial authority in Ontario. In Re Coulson, 1977 Can1.II 1060 (ONCA), the Ontario Court of Appeal held that an income beneficiary who had been receiving income from a trust on an annual basis could validly disclaim the income from her interest in the trust in a particular, taxation year, and then continue to receive the income in subsequent taxation years….]

[I]n Murphy Estate [2015 TCC 8]…[t]he court noted that a disclaimer is a refusal to accept an interest that has been bequeathed to a disclaiming party. Its effect is to void the gift as if the disclaiming party never received it. The gift becomes part of the estate of the deceased and the disclaiming party has no right to direct who is to receive the gift.

Words and Phrases
disclaimer

Paragraph 248(8)(c)

Administrative Policy

S6-F2-C1 - Disposition of an Income Interest in a Trust

1.14 When subsection 248(8) applies, the more restrictive requirements of the definition of release or surrender found in subsection 248(9) must be met. Pursuant to paragraph 248(8)(c), a release or surrender by a beneficiary with respect to any property that was property of a deceased individual immediately before death, is not considered to be a disposition of the property by the beneficiary . However, paragraph 248(8)(c) does not apply to an income interest that arises upon the death of the deceased, as such an interest could not have been property of the deceased immediately before death.

Subsection 248(10) - Series of transactions

Cases

Groupe Honco Inc. v. Canada, 2014 DTC 5006, 2013 FCA 128, aff'g 2013 DTC 1032 [at 149], 2012 TCC 305, infra

On January 13, 1999, a newly-incorporated corporation ("New Supervac") was leased the assets of an unrelated corporation ("Old Supervac"), coupled with an option to acquire those assets and the right to also acquire all the shares of Old Supervac. The business was restored to profitability in short order, and New Supervac then acquired the assets on October 7, 1999, acquired the Old Supervac shares on November 17, 1999 and amalgamated with it on January 1, 2001. The amalgamated New Supervac paid a capital dividend in the fall of 2004 to one of the taxpayers (with such capital dividend being further distributed), and the Minister applied s. 83(2.1) to the capital dividends.

In response to the taxpayers' submission that too much time had passed between the different transactions for them to be one series of transactions, Trudel JA noted that Copthorne indicated that sometimes the elapsed time would be a relevant factor in this determination, and that Boyle J had made a finding of fact that, at the time the decision was taken to pay a capital dividend, New Supervac had taken into consideration the capital dividend account that had been acquired with the Old Supervac shares.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.1) two or three main purposes 65

Copthorne Holdings Ltd. v. Canada, 2012 DTC 5006 [at 6536], 2011 SCC 63, [2011] 3 S.C.R. 721

"in contemplation" could be retrospective

The taxpayer's shareholders circumvented the rule in s. 87(3), which required that the paid-up capital ("PUC") of a subsidiary corporation disappear on a vertical amalgamation, by arranging for the subsidiary corporation in question (whose shares had a high PUC but a low value) to be first distributed to the shareholder group before it and its previous parent were amalgamated horizontally to continue as a predecessor of the taxpayer. At the time of these transactions, the shareholder group had not yet decided how (or whether) they would utilize the preserved PUC. However, [over] a year later, the taxpayer redeemed a large portion of its shares and utilized the PUC attributable to the redeemed shares through a distribution to its non-resident shareholder, thereby avoiding Part XIII tax.

In finding that the taxpayer should be reassessed under s. 245, the Court found that the series of transactions pertaining to the reorganization, and the subsequent redemption, were part of the same series of transactions. Under Canada Trustco, a transaction is completed "in contemplation of" a series of transactions whenever it is completed "because of" or "in relation to" the series. The finding at trial that the transactions shared a "strong nexus" thus fit the expansive meaning of "series of transactions" under s. 248(10).

The Court also addressed the criticism of its finding in Canada Trustco that the words "in contemplation of" could be retrospective. (The argument was essentially that the plain meaning of "in contemplation of" implies the contemplation only of a future event.) The Oxford English Dictionary definition of "to contemplate" does not require that contemplation be prospective (para. 53). Rothstein J. stated (at para. 56):

The fact that the language of s. 248(10) allows either prospective or retrospective connection of a related transaction to a common law series and that such an interpretation accords with Parliamentary purpose, impels me to conclude that this interpretation should be preferred to the interpretation advanced by Copthorne [that "in contemplation of" is prospective only].

Locations of other summaries Wordcount
Tax Topics - General Concepts - Stare Decisis high threshold for reversing not met 169
Tax Topics - Income Tax Act - Section 245 - Subsection 245(1) - Tax Benefit 297
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) policy of s. 87(3) is to avoid preservation of PUC on parent and sub amalgamation 356
Tax Topics - Statutory Interpretation - Expressio Unius est Exclusio Alterius 105

Toronto-Dominion Bank v. Canada, 2011 DTC 5125 [at 6061], 2011 FCA 221, [2011] 6 CTC 19

A transitional provision in the Act provided that the old s. 55(1) would apply to a transaction if it were "part of a series of transactions, determined without reference to subsection 248(10) of said Act, commencing before the day on which this Act is assented to and completed before 1989... ." The Minister argued that the exclusion of s. 248(10) did not automatically restrict "series of transactions" to mean only series that were pre-ordained. The Court disagreed. Evans J.A. stated (at para. 46):

It would only make sense to exclude subsection 248(10) - which is designed to include transactions otherwise excluded from the common law meaning of "series of transactions" because not pre-ordained - if the series of transactions had to be pre-ordained.

Lipson v. Canada, 2007 DTC 5172, 2007 FCA 113, aff'd 2009 DTC 5015 [at 5528], 2009 SCC 1

The taxpayer's wife ("Jordanna") borrowed $562,500 from the Bank of Montreal under an interest-bearing demand promissory note in order to purchase some of the shares of the a family corporation from the taxpayer for that sum, with the sale proceeds being used by the taxpayer to purchase a family home. The next day, a mortgage loan on the home received from the Bank was used to retire the demand promissory note. The taxpayer did not report a capital gain on the sale of the shares (on the basis that the inter-spousal rollover in subsection 73(1) applied) and included in the computation of his income both the dividends on the shares purchased by Jordanna, and the interest expense incurred by her on the mortgage loan, on the basis that the attribution rules in subsection 74.1(1) applied.

After noting (at para. 47) that in the Canada Trustco case, the Court had confirmed that "the expression 'series of transactions' in section 245 refers to transactions that are 'pre-ordained in order to produce a given result' with 'no practical likelihood that the planned events would not take place in the order ordained'", the Court noted that here the series of transactions comprised those described in the paragraph above together with the following events which were later completed in contemplation of the series, namely, the deduction by Jordanna of interest costs, and the utilization by the taxpayer of the attribution rules.

Canada Trustco Mortgage Co., v. The Queen, 2005 DTC 5523, [2005] 2 S.C.R. 601, 2005 SCC 54

The Court stated (at 5528) that s. 248(10) has application:

"where the parties to the transaction 'knew of the ... series, such that it could be said that they took it into account when deciding to complete the transaction'. We would elaborate that 'in contemplation' is read not in the sense of actual knowledge but in the broader sense of 'because of' or 'in relation to' the series. The phrase can be applied to events either before or after the basic avoidance transaction found under s. 245(3)."

Words and Phrases
contemplation
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(1) - Tax Benefit 126
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) policy of CCA provisions relied on cost irrespective of risk mitigation 207
Tax Topics - Statutory Interpretation - Certainty 127
Tax Topics - Statutory Interpretation - Ordinary Meaning primacy to ordinary meaning if unequivocal 90

OSFC Holdings Ltd. v. Canada, 2001 DTC 5471, 2001 FCA 260

Although the "common law" meaning of a series of transactions was transactions each of which is pre-ordained to produce a final result, s. 248(10) was found to have expanded this meaning.

See Also

Oxford Properties Group Inc. v. The Queen, 2016 TCC 204

subsequent sale part of series as it utilized the benefit of previous LP packaging transactions

A corporation (“BPC”), which was mostly owned by a Canadian pension fund (“OMERS”), obtained the agreement of a predecessor of the taxpayer (“OPGI Amalco”) that, prior to BPC’s acquisition of OPGI Amalco, it or an OPGI Amalco subsidiary (“MRC Amalco”) would transfer various of its rental real estate properties (including the “Three Real Estate Properties”) on a s. 97(2) rollover basis to newly formed LPs (the “First Level LPs”). Following the acquisition on October 16, 2001 of OPGI Amalco by a subsidiary of BPC, the cost of the interests in the First Level LPs was bumped under s. 88(1)(d) on an amalgamation which formed the taxpayer. In 2004, the First Level LPs transferred the Three Real Estate Properties to respective newly-formed LPs (the “Second Level LPs”) on a s. 97(2) rollover basis and the First Level LPs were wound–up, thereby permitting the high ACB in their units to be pushed down onto the cost of the interests in the Second Level LPs under s. 98(3)(c). The taxpayer then sold its interests in the Second Level LPs, somewhat after the three-year period referenced in s. 69(11), to entities that were exempt from Part I tax.

Consistently with Copthorne, D’Arcy J found that the series of transaction contained avoidance transactions. Respecting a taxpayer submission that, at the time of the acquisition of its control, OPGI Amalco had not yet determined whether two of the properties would be “long term hold properties,” or instead sold (through a sale of LP interests in “Atria LP and CEC LP”) to Alberta Revenue (“AIMCo), he stated (at paras 72, 75):

[T]he sale of the limited partnership interests to the subsidiaries of AIMCo was exactly the type of transaction necessary to make the tax benefit resulting from the series of transactions… (which included the packaging of the real property into a limited partnership and the bump of the adjusted cost base of the interests in the limited partnership) a reality. …

[T]he Appellant, when selling its limited partnership interests in Atria LP and CEC LP to the subsidiaries of AIMCo, clearly took into account the transactions… that resulted in the packaging of the real property into limited partnerships and the bumping of the adjusted cost base with respect to such limited partnerships.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) no abuse in using 88(1)(d) bump to avoid s. 100 after 3-year s. 69(11) period 537
Tax Topics - Income Tax Act - Section 97 - Subsection 97(2) purpose not to tax underlying recapture on subsequent LP unit sale 415
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(d) purpose: to push down ACB of shares of sub to qualifying non-depreciable property 474
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 45(2) subsequent amendment shed light on scope of previous version 99
Tax Topics - Income Tax Act - Section 100 - Subsection 100(1) S. 100 operates only on outside basis gain 278
Tax Topics - Income Tax Act - Section 69 - Subsection 69(11) Parliament provided safe harbour for sales after 3 years 197
Tax Topics - Income Tax Act - Section 98 - Subsection 98(3) - Paragraph 98(3)(c) purpose: to preserve high outside basis through push down 285

Pièces automobiles Lecavalier Inc. v. The Queen, 2014 DTC 1126 [at 3319], 2013 TCC 310

debt-paydown transactions effected in contemplation of sale transaction were part of same series as the sales transactions

A Canadian subsidiary ("Greenleaf") of Ford U.S. paid down to $9,750,000 (including accrued interest) a debt of $24,369,439 (plus accrued interest) owing by it to Ford U.S. through the application of share subscription proceeds of $14,843,596 received by it from Ford U.S.A. and the application of a small amount of cash on hand of $100,706. Eighteen days later, a predecessor of the taxpayer ("392"), which was at arm's length with Ford U.S., purchased all the shares of Greenleaf from Ford U.S. for consideration of $1, and purchased the debt at only a slight discount to the amount owing, so that the debt-parking rules in ss. 80.01(6) to (8) did not apply. The Minister applied s. 245(2) on the basis that Greenleaf had sustained a debt forgiveness in the amount of the debt-paydown.

After indicating that he was not convinced that the debt-paydown transactions had occurred only at the behest of Ford U.S., Bédard J went on to indicate that, in any event, they were part of the same series of transactions as the debt purchase as Ford U.S. had effected them in order to realize a capital loss on its shares of Greenleaf, so that the debt-paydown transactions were related transactions effected in contemplation of the subsequent sale transaction.

Bédard J proceeded to find abuse.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence Canadian tax accountant's testimony on US tax consequences accorded little weight 138
Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) debt-paydown transactions were avoidance transactions 236
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) avoidance of debt forgiveness rules was abusive 247

MIL (Investments) S A v. The Queen, 2006 DTC 3307, 2006 TCC 460, aff'd 2007 FCA 236

aff'd on other grounds 2007 FCA 236

In March 1993 an individual ("Boulle") transferred his shares of a Canadian public junior exploration company ("DFR") to the taxpayer, which was a newly-incorporated Cayman Islands company wholly owned by him. By June 1995 the DFR shares had substantially appreciated in value, at which time the taxpayer exchanged, on a rollover basis pursuant to s. 85.1, a portion of its DFR shares for common shares of a large Canadian public company ("Inco"), with the result that the taxpayer's shareholding in DFR was reduced below 10%.

In finding that the (final) sale by the taxpayer of DFR shares in August 1996 was not part of the series of transactions that included the sale by the taxpayer of DFR shares to Inco in June 1995, and the continuation of the taxpayer to Luxembourg in July 1995, Bell J. found that at and prior to the time of continuation, DFR management, including Boulle, and therefore, the taxpayer, had no intention of selling DFR shares after having stated (at p. 3314):

"There must be a strong nexus between transactions in order for them to be included in a series of transactions. In broadening the word 'contemplation' to be read in the sense of 'because of' or 'in relation to the series', the Supreme Court cannot have meant mere possibility, which would include an extreme degree of remoteness. Otherwise, legitimate tax planning would be jeopardized ... ."

Canutilities Holdings Ltd. v. The Queen, 2003 DTC 1029 (TCC), rev'd in part 2004 DTC 6475, 2004 FCA 234

Normal course dividends paid by the taxpayers were not paid in contemplation of transactions in which their common shares of a public company were converted into special shares of an amalgamated corporation and redeemed and, therefore, were not assimilated to the series comprising such amalgamation/redemption transactions.

Les Placements E&R Simard Inc. v. The Queen, 97 DTC 1328 (TCC)

On September 10, 1988, the taxpayer transferred its assets to a subsidiary ("Alimentation 1988") in consideration for a demand promissory note and 506,125 Class B shares having a redemption value of $1 per share and nominal paid-up capital. 151,125 of the Class B shares were redeemed in the fiscal years of Alimentation 1988 ending on May 31, 1990, 1991 and 1992.

In finding that the redemptions did not occur as part of the same series of transactions that included the 1988 sale, Tardiff TCJ. noted that they did not occur close in time to the first transaction, the transactions were not interdependent in the sense that there was a real possibility that Alimentation 1988 might never have redeemed the shares, and the fundamental objective underlying the 1988 transaction was for one of the two principals of the taxpayer to retire from the business of the taxpayer. The financial objective of converting, at some time, the Class B shares into cash was secondary.

Craven v. White, [1988] BTC 268 (HL)

Lord Jauncey stated:

"If it were appropriate to prepare a formula defining 'composite transaction' in the light of the passages in the speeches in Ramsay, Burmah and Dawson to which I have referred I should be tempted to suggest the following:

'A step in a linear transaction which has no business purpose apart from the avoidance or deferment of tax liability will be treated as forming part of a pre-ordained series of transactions or of a composite transaction if it was taken at a time when negotiations or arrangements for the carrying through as a continuous process of a subsequent transaction which actually takes place had reached a stage when there was no real likelihood that such subsequent transaction would not take place and if thereafter such negotiations or arrangements were carried through to completion without genuine interruption.'"

Locations of other summaries Wordcount
Tax Topics - General Concepts - Tax Avoidance 181

Administrative Policy

24 October 2012 Internal T.I. 2012-0456711I7 F - Inadmissibilité à la déduction pour GC

Contains a general discussion of the series of transactions doctrine in the context of a proposes asessment under s. 110.6(7)(b). CRA notes that under Copthorne, a series of transactions can include the prospective or retrospective attachment of a related transaction to the series.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(7) 43
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4.2) no retroactive adjustment of capital gains exemption 107

17 November 2000 External T.I. 1999-000858 -

"A particular transaction will be part of a series of transactions if that transaction is logically and reasonably connected to another transaction or series of transactions or is a related transaction undertaken in contemplation of another transaction or series of transactions."

23 August 1991 T.I. (Tax Window, No. 8, p. 21, ¶1409)

A preliminary transaction will form part of a series of transactions that includes subsequent transactions if at the time of the preliminary transaction the taxpayer has the intention to implement the subsequent transactions when the subsequent transactions are eventually carried out, even though at the time of completion of the preliminary transactions the taxpayer either had not determined all the important elements of the subsequent transactions or lacked the ability to implement the subsequent transactions.

9 May 1990 Meeting (October 1990 Access Letter, ¶1474)

"If at the time of the 'butterfly' reorganization the shareholders had formed the intention to sell their shares, and their shares are eventually sold, the reorganization and the ultimate sale will be considered to form part of the same series even though at the time of the reorganization the shareholders either had not determined all of the important elements of the subsequent sale - such as, for example, the identity of the purchaser or the purchase price and terms of payment - or lacked the ability to implement the subsequent sale."

3 November 89 T.I. (April 90 Access Letter, ¶1172)

"A preliminary transaction will form part of the series of transactions or events determined with reference to subsection 248(10) if, at the time that the preliminary transaction is carried out, the taxpayer is intending to implement the subsequent transactions constituting the series, and the subsequent transactions are eventually carried out. Thus, the preliminary and subsequent transactions will be part of the series even though at the time of completing the preliminary transactions the taxpayer either had not determined all the important elements of the subsequent transactions - such as, for instance, the identity of the other taxpayers involved - or lacked the ability to implement the subsequent transactions."

Articles

Justice Marshall Rothstein, "An Overview of the Supreme Court of Canada", Bulletin for International Taxation (IBFD), January/February 2016, p. 20.

Resort to foreign judgments (p. 25)

An example concerns the interpretation of a "series of transactions" under a general anti-avoidance rule (GAAR) that is found to be abusive of the Income Tax Act. English jurisprudence had a direct influence in Canada on the way in which this concept was understood. In the 2005 case Canada Trustco Mortgage Co v. Canada, the Supreme Court agreed with the Federal Court of Appeal which, in a prior unrelated case, had adopted the interpretation of the UK House of Lords' decisions in Furniss v . Dawson and Craven v. White... . Another example is Canada's approach to defining residency of a corporation and a trust, which is informed by British jursiprudence... .

Benjamin Alarie, Julia Lockhart, "The Importance of Family Resemblance: Series of Transactions After Copthorne", Canadian Tax Journal (2014) 62:1, 273-99.

Extension of common-law series (pp. 76-77)

… Kandev et al. argue that the purpose of subsection 248(10) is merely to bring into the Act the common-law meaning of series; [fn 25: Michael Kandev, Brian Bloom, and Olivier Fournier, "The Meaning of 'Series of Transactions' as Disclosed by a Unified Textual, Contextual, and Purposive Analysis" (2010) 58:2 Canadian Tax Journal 277-330, at 279.] however, that view is not one that is widely held….

In Copthorne, the Supreme Court again stated that the "common law series is expanded by s. 248(10) of the Act." [fn 28: Copthorne, 2011 SCC 63, at paragraph 43.]…

Meaning of "related transactions" (p. 78)

[N]one of the cases involving subsection 248(10) explicitly purports to define "related transactions or events" as an independent element. [fn 32: On the other hand, it should be noted that in OSFC…at paragraph 36, Rothstein JA wrote, "As long as the transaction has some connection with the common law series, it will, if it was completed in contemplation of the common law series, be included in the series by reason of the deeming effect of subsection 248(10) [emphasis added]."…] The courts seem to have simply taken the view that a transaction is related to a series where it is carried out in contemplation of that series. In other words, the courts appear to have effectively read subsection 248(10) as though it had used the words "related in the sense of having been completed in contemplation of the series."

This interpretation is arguably inconsistent with the principle of statutory interpretation to the effect that Parliament does not speak without reason. [fn 33: See, for example, R v. D.A.I., 2012 SCC 5, at paragraph 31.]…

Breaking of series by intervening event (p. 84)

One possible standard to consider for intervening events comes from the field of tort law: the concept of novus actus interveniens…. Applying this test to the series concept would mean asking whether the intervening event was foreseeable at the time of the earlier transaction or series. If the event was foreseeable, it would not be sufficient to break the series….

Length of time between series and related transactions (p. 85)

The courts have previously expressed a variety of views on what might count as a sufficient length of time to prevent a series from existing. In Les Placements E. & R. Simard Inc. v. The Queen, for example, Tardif J wrote that a 12-month interval constituted a "long period of time" for the purpose of determining whether a series existed. [fn 65: 97 DTC 1328, at 1337 (TCC).] Similarly, in Industries SLM Inc. v. MNR, Archambault J suggested that intervals of 9 months and 33 months were relatively long for a common-law series. [fn 66: [1996] 2 CTC 2572, at 2489 (TCC).] Finally, in Copthorne itself, Ryer J of the Federal Court of Appeal appeared to be of the view that while 18 months might be sufficient to prevent subsection 248(10) from applying, one year was relatively short. [fn 67: 2009 FCA 163, at paragraph 51.]

Meaning of "family resemblance" (pp. 90-1)

Milet has explained the idea of family resemblance as follows:

[T]he various instances of a general term's application would be linked by, as Wittgenstein called them, "family resemblances" – the reference here being to the way that traits are shared by and dispersed among members of a family: for instance, a girl has red hair and is short like her father and grandmother, while her brother, who is also red-haired, is tall like his blond mother. Despite having no single set of features in common, the various members viewed as a group may quite visibly belong to the same family. …[fn 80: Matias Milet, "Hybrid Foreign Entities, Uncertain Domestic Categories: Treaty Interpretation Beyond Familiar Boundaries" (2011) 59:1 Canadian Tax Journal 25-57, at 34.]

Application of purpose of non-GAAR provision to series determination (pp. 93-4)

[H]aving determined the purpose of the provision, how should a court use that purpose to determine whether or not a series exists? The answer in many statutory contexts is that the set of transactions must bear a family resemblance to those that Parliament could reasonably be considered to have had in mind in invoking the series concept as a means of anti-avoidance. Under a family resemblance approach to series of transactions, a court would begin by identifying a stylized set of transactions or events (generally an avoidance arrangement of some kind) that Parliament could reasonably be considered to have had in mind in drafting the provision (or provisions) in which the series concept appears. The court would then attempt to ascertain whether the transactions carried out by the taxpayer bore a sufficient family resemblance to that stylized set of transactions or events to be considered a series for the purposes of that particular statutory invocation of the term.

Example: are replacement stock options part of bump denial series? (pp. 94-5)

Consider the following example…

  • Bidco is a wholly owned subsidiary of a public corporation, Pubco. Bidco intends to acquire all of the shares of Target, also a public corporation, in an all-cash deal. Certain management employees of Target are specified shareholders for purposes of the bump denial rules in paragraph 88(1)(c)….
  • Bidco will enter into employment agreements with the management employees of Target providing that those employees will receive, in accordance with Pubco's regular compensation policy, options to acquire shares of Pubco. The purpose of the stock option grant is to retain Target's management employees and foster their loyalty to Pubco following the takeover. Target's management has no involvement in Bidco's tax planning and is unaware that Bidco is contemplating a bump reorganization. [fn 87: Mark D. Brender, "Series of Transactions: A Case for a Purposive Interpretation," Corporate Tax Planning feature (2007) 55:1 Canadian Tax Journal 220-34.]

…Brender argues that the transactions do not form a series because they do not share a common purpose, a point with which we agree. That being said, in our view, the option grant should not form part of the series for a more fundamental reason—namely, that the option grant does not bear any family resemblance to the types of transactions that Parliament can reasonably be considered to have had in mind when it enacted subparagraph 88(1)(c)(vi). ...[T]here is no subset of the sequence of events described in Brender's example that bears a family resemblance to the avoidance arrangements that Parliament sought to address... .

Application of purpose of GAAR to series determination (p. 104)

We contend that if a particular transaction in its context bears a family resemblance to a stylized transaction that is accepted as being abusive, then the safeguard of subjection 245(4) ought not to operate to protect the tax benefit claimed by the taxpayer, which will be denied "as is reasonable in the circumstances" by the operation of subsection 245(2).

UK GAAR (p. 107)

[I]t is instructive that the United Kingdom has decided not to use the series concept in its new general anti-abuse rule ("UK GAAR"). Instead, it has adopted a "tax arrangement" test, which sets a low threshold for determining whether transactions are tax-motivated….

David M. Williamson, Michael H. Manly, "Subsection 69(11) - Unexpected Problems from Inappropriate Positions", Corporate Structures and Groups, Vol. V, No. 4, 1999, p. 285.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 69 - Subsection 69(11) 0

Thivierge, "Emerging Income Tax Issues", 1993 Conference Report, c. 4

J. Tiley, "Series of Transactions", 1988 Conference Report, c.8.

Subsection 248(16) - Goods and services tax — input tax credit and rebate

Administrative Policy

27 November 2014 External T.I. 2013-0503861E5 F - Application du paragraphe 248(16)

ETA s. 193 ITC claim does not reduce UCC under s. 85(1)(e)(i)

Where a building drop-down under s. 85(1) generates an ITC to the transferor under ETA s. 193, such ITC does not reduce the UCC of the property for s. 85 elected amount purposes. CRA appears to be effectively ignoring s. 248(16)(a)(i), which deems the ITC to have been received as government assistance when the GST originally was payable by the transferor, because that does not make any sense under facts such as these. See summary under s. 85(1)(e).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(e) ETA s. 193 ITC generated on drop-down does not reduce UCC at that time 185

3 January 1992 T.I. (Tax Window, No. 15, p. 24, ¶1683)

A cash-basis taxpayer will be considered to have received a GST input tax credit in the period for which the refund is claimed on the GST return.

19 August 1991 Memorandum (Tax Window, No. 8, p. 12, ¶1395)

A GST input tax credit is considered to be received or credited in the reporting period in which the claim was made rather than the reporting period to which the claim relates.

22 March 1991 T.I. (Tax Window, No. 1, p. 7, ¶1164)

A GST rebate which is claimed by a partner of a partnership at the end of the 1991 calendar year in respect of expenses incurred by him personally before the end of the partnership's fiscal year ending in 1991 will not be included in his income until the year in which it is received or credited, which will be 1992 at the earliest.

Subsection 248(18) - Goods and services tax — repayment of input tax credit

Administrative Policy

19 August 1991 Memorandum 911368(E)

Where the taxpayer was assessed in July 1993 to deny an input tax credit, appealed successfully to the Tax Court but with the Minister then successfully appealing the Tax Court decision, the "particular time" referred to in s. 248(18) would be July 1993. If the taxpayer had ultimately prevailed in its GST appeal at a time when the July 1993 had become statute-barred, there would be a loss to the fisc.

Subsection 248(20) - Partition of property

Administrative Policy

9 June 2015 External T.I. 2014-0554381E5 F - Copropriété par indivision - partage de biens

retention of original acquisition date under s. 248(20)(b)

Mr A held land used by him in farming in co-ownership with his brother. Following a partition and cessation of farming, Mr A became the sole owner of the land and sold it to a third party. What was the date of Mr A's acquisition for purposes of s. 110.6(1.3)(a) and (c)? CRA stated (TaxInterpretations translation):

The proportion of the right in land which Mr A held from the death of his father is deemed under paragraphs 248(20)(a) and (b) to have not been acquired or disposed of by him. As he acquired that interest before 18 June 1987, paragraph 110.6(1.3)(c) applies to that right.

In accordance with 248(20)(d), Mr A is deemed to have acquired the proportion of the right that his brother held in the land. As that was not acquired before 18 June 1087, paragraph 110.6(1.3)(a) applies to that interest.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1.3) partition did not reset original date of acquisition of property in co-ownership 139

25 September 2000 External T.I. 2000-0038595 -

initially one property if acquired under one deed

"In a situation where more than one property is acquired under one deed, such properties would be considered to be one property for purposes of the partitioning rules even if the properties were not adjacent. Subsection 248(20) of the Act applies where the fair market value of the separate piece of property received by a co-owner upon partition is less or greater than the fair market value of the co-owner's previous interest. Where the value is less, the co-owner is deemed to have disposed of the part of the interest in the property attributable to the shortfall. An amount received by such a co-owner because of an unequal partition could result in a gain or loss from the disposition. Where the value is greater, the co-owner is deemed to have acquired an interest in the property attributable to such excess. Furthermore, where a partition occurs but the property is not divided proportionately with respect to fair market values, the exception provided by subsection 248(21) of the Act will not apply, and thus subsection 248(20) will apply, in those situations where the joint owners make up for the disproportionate interest by cash contributions or otherwise, such as a disproportionate allocation of debt."

1996 Ruling 961817 Renewed as 970265 [partition of securities holdings]

partition of securities holdings

A partnership holding publicly-traded shares and limited partnership units was to be wound-up under s. 98(3), with the shares and units (while being held by a nominee) were partitioned into new share and unit certificates. RC ruled that the partition would not constitute a disposition provided that there was a partition under the provincial law.

27 April 1998 Memorandum 980456 [partition of milk quota]

partition of milk quota

The partition of a jointly owned non-real estate asset, such as a milk quota, could be accomplished under either s. 248(20) or (21) of the Act without causing a disposition, provided the fair market value tests were satisfied.

23 December 1992 T.I. (Tax Window, No. 27, p. 20, ¶2341) [partition of non-adjacent properties]

partition of non-adjacent properties

If non-adjacent parcels of land are acquired at one time and under one deed, they will be considered as property that can be partitioned under s. 248(20).

24 February 1992 Memorandum (Tax Window, No. 13, p. 17, ¶1622)

Where an undivided interest in partnership property is distributed to each partner in accordance with s. 98(3), any partition of property which is jointly owned by the former partners after the distribution will be subject to the application of s. 248(20).

23 October 1991 T.I. (Tax Window, No. 12, p. 18, ¶1552)

Where a co-owner exchanges an undivided interest in a property for an undivided interest in each subdivided parcel, followed by an exchange of the undivided interest for a divided interest in the subdivided parcel, no partition would have occurred.

Subsection 248(21) - Subdivision of property

Administrative Policy

2011 Ruling 2011-0408781R3 - Partition of Property - Land and Buildings

partition of one building from 2 others

A rental property comprised of land and three buildings, is beneficially owned by three co-owners, holding their interests as capital property. S. 248(21) ruling given (based inter alia on the FMV test being satisfied) respecting the subdivision and partition of the property so that Property 1 and Property 2 (representing XX% of the FMV of the Project at that time) are held under one new title and co-owned by two of the former co-owners; and Property 3 (representing XX% of the FMV of the Project at that time) is held under a separate new title by the third former co-owner.

1 September 2010 External T.I. 2009-0338641E5 - Partition of property

one property if acquired under one deed

In a general response, CRA stated:

Subsection 248(21) applies where a co-owner receives, upon the partition of "a property", title to a separate piece of property whose fair market value equals the fair market value of the co-owner's previous interest. In such a situation, paragraph 248(21)(b) of the Act deems the co-owner's new interest to be a continuation of the co-owner's undivided interest in the property immediately before the partition. In other words, the co-owner will have neither disposed of nor acquired any property and, as a result, there is no capital gain or loss upon the partition of the property. Since the term "a property" is used, this means a singular property or one property. However, paragraph 248(21)(c) provides an exception to the single property rule for purposes of subsection 248(21) and modifies the meaning of the term "a property" so that subdivisions of land established in the course of, or in contemplation of, a partition shall be regarded as one property.

…Where more than one property is acquired under one deed, it is our general view that such properties would be considered to be one property.

8 August 2005 External T.I. 2005-0145251E5 -

partition of property with two buildings

The summary states:

Can a property with two buildings on it be partitioned so that each former co-owner receives one building?...No. The buildings are separate properties and are not being partitioned.

The body is inconsistent internally and with this summary.

2003 Ruling 2003-003336 -

partition of goodwill

A professional partnership in the health field winds up its operations with a view to electing under s. 98(3), on the winding-up each partner receives an undivided interest in the Partnership's property including goodwill and, immediately thereafter, each of the former partners enters into a contract to acquire a divided interest in the former Partnership's goodwill and, in order that the division will be legally enforceable between the parties, each former partner signs a non-solicitation agreement with respect to the patients that may follow a particular former partner after the wind-up of the Partnership. The former partners or companies related to them enter into contractual arrangement with a newly-incorporated operating company whereby it will be able to utilize goodwill and related assets of the corporation in consideration for paying a licensing fee and also retaining the former partners for agreed-upon per diem fees.

A ruling is given that provided the contracts between the former partners to acquire a divided interest in the goodwill constitutes a "partition" under the governing laws, s. 248(21) of the Act will apply, s. 248(20) will not apply, and each Partner's divided interest in goodwill will be deemed to be a continuation of each such Partner's undivided interest in such partnership goodwill immediately before its partition.

2003 Ruling 2003-000951 -

A master partnership invests in a lower-tier operating partnership which, in turn, transfers a business acquired by it to a newly-formed taxable Canadian corporation ("Canco") in exchange for preferred shares pursuant to s. 85(2) and the lower-tier partnership is wound up under s. 85(3), so that the master partnership receives the preferred shares. On a wind up of the master partnership under s. 98(3) each partner receives an undivided proportionate interest in each preferred share. Following a dissolution of the master partnership, the former partners partition each of the preferred shares so that each partner's respective undivided interest in the particular preferred share becomes a divided interest. [With an equivalent fair market value] Canco issues certificates for any fractional shares created as a result of the partition and the shareholders' register indicates fractional shares held by each shareholder to the extent necessary to reflect the partition. The holders of the preferred shares then exchange the preferred shares for common shares of the corporation with an equivalent fair market value

Ruling that s. 248(21) applies to the partition.

28 October 2002 External T.I. 2002-013478 -

partition of securities' holings

Respecting the situation where corporations own undivided interests in shares of public corporations and in an interest in a mutual fund trust following the dissolution of a partnership, and wish to partition such properties, the Director stated:

"If a corporation can legally issue fractional shares and if the partition of a share gives rise to the issuance of fractional shares, all of such fractional shares would be considered to represent the same property as the share being partitioned and each person would be considered to have a new interest in such a share. Consequently, subsection 248(21) may apply to the partition of a share in such circumstances. If subsection 248(21) does not apply, the partition of the share may not necessarily attract adverse tax consequences pursuant to subsection 248(20) ... . [A]n interest in a trust constitutes one property, even if described by reference to units. Consequently, if it is legally possible to effect a partition of an interest in a trust owned by two or more persons and if each person's respective undivided interest in such an interest becomes a divided interest in the said interest, the Rulings Directorate would generally consider that subsection 248(21) may apply to such partition if the fair market value test in subsection 248(21) is met ... ."

17 September 1996 T.I. 962525 (C.T.O. "ACB of Partitioned Interest")

Where three parties jointly own equal undivided interests in a property, and the property is subdivided into three lots with each party having 100% ownership of one lot, s. 248(21)(b) provides that the cost of each co-owner's new interest will be the same as the cost of its undivided interest in the property before the partition.

12 July 1995 T.I. 942878 (C.T.O. "General Scheme of Partition")

After a detailed description by the correspondent of the manner in which the partition of real property in B.C. typically is undertaken, RC indicated that s. 248(21)(b) would apply provided the prerequisites contained in s. 248(21) are met. RC also stated that the term "a property" means "a singular property or one property", and that s. 248(21)(c) "modifies the meaning of this term so that subdivisions of land established in the course of or in contemplation of a partition shall be regarded as one property."

1994 A.P.F.F. Round Table, Q. 31

"The conditions for applying subsection 248(21) ... cannot be met where the property that is the subject of a parition is an undivided interest in a partnership ... . Subsection 248(21) of the Act usually applies only to property listed in paragraph (c), i.e., to buildings and parcels of land."

27 January 1992 T.I. (Tax Window, No. 15, p. 18, ¶1687)

S.248(21) generally will apply where a piece of land has been subdivided into several parcels and the subdivided parcels are then partitioned between the joint owners. However, if subsequent to the partition, several other subdivided parcels continue to be held in joint ownership by all the joint owners and they subsequently exchange with each other their undivided interests so that each owner receives a divided interest, a disposition will occur at that time.

8 January 1992 T.I. (Tax Window, No. 15, p. 17, ¶1686)

The rules in s. 248(21) could apply where there is a stratification of a condominium building and a subsequent proportionate distribution of the units to the owners.

Articles

McMullen, "Tax Considerations in the Reorganization of Partnerships", 1994 Corporate Management Tax Conference Report, c. 6.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 97 - Subsection 97(2) 0

Subsection 248(22) - Matrimonial regimes

Administrative Policy

Tax Professionals Mini Round Table - Vancouver - Q. 32 (March 1993 Access Letter, p. 110)

S.248(22) and (23) are not restricted in their application to the ownership of property under the matrimonial regimes in the Province of Quebec.

Subsection 248(23.1)

Paragraph 248(23.1)(a)

Administrative Policy

6 June 2017 External T.I. 2015-0617331E5 F - TFSA - Exempt Contribution

payment of family-law obligation of deceased to surviving spouse out of deceased's TFSA could qualify

The definition of “survivor payment” in s. 207.01(1) - exempt contribution – para. (b) references a payment to the survivor directly or indirectly out of the former TFSA as a consequence of the deceased’s death. CRA considered that this requirement can be satisfied where the TFSA property is used for the payment of family-law debt of the deceased (e.g., obligations for support or under a separation agreement) to the surviving spouse, given the effect of the 248(23.1)(a) deeming rule.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Exempt Contribution - Paragraph (b) payment of family-law debt out of TFSA to surviving spouse would occur as a consequence of the deceased’s death 298
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(a) legacy of residue (which included the residence) could be satisfied with TFSA of deceased 91

Subsection 248(24) - Accounting methods

Administrative Policy

7 August 1991 T.I. (Tax Window, No. 7, p. 18, ¶1386)

The enactment of s. 248(24) does not affect the computation of safe income under s. 55(2)

Subsection 248(25) - Beneficially interested

Cases

Canada v. Propep Inc., 2010 DTC 5088 [at 6882], 2009 FCA 274

potential beneficiary was a beneficiary

The taxpayer was owned by another corporation (9059) which, in turn, was owned by a Quebec trust whose first-ranking beneficiary was 9059, and second-ranking beneficiary was the son of an individual who controlled two other corporations with which CRA had found the taxpayer was associated. It was accepted that the taxpayer would be so associated if the son was deemed by s. 256(1.2)(f)(ii) to own 9059.

Although the discretion conferred on the trustees to distribute capital to the son could not be exercised before the winding-up of 9059 or the expiration of 100 years, the trustees could in exercising their discretion and at the time of their choosing wind up 9059, thereby making the son the sole beneficiary. Accordingly, the son was deemed by s. 256(1.2)(f)(ii) to own 9059. In addition, he was an income beneficiary, and under the Act an income beneficiary was treated as a beneficiary of the trust.

Finally, he was a beneficiary under the expanded definition of "beneficially interested" in s. 248(25). In this regard, Noël JA stated (at paras. 23-24) after referring to s. 248(25)(a):

The TCC judge seems to be of the opinion that this definition does not apply here because the expression "beneficially interested" is not used in either of the provisions dealing with associated corporations (256(1)( c ), 256(1.2) and 256(1.3))... . With respect, the expression "beneficially interested" does not have to be reproduced in each provision where it is likely to be applied. This concept applies each time the question arises whether a person is "beneficially interested" in a particular trust. A person who has a contingent right to the capital or income of a trust is "beneficially interested" for the purposes of the Act.

Administrative Policy

28 June 2017 External T.I. 2016-0653921E5 F - Beneficiary/person beneficially interested

testamentary trust could be considered to have a right as beneficiary in estate

S. 70(3) provides that the rights and things election under s. 70(2) is unavailable if the rights or things (the “Property”) have been distributed by the estate before the deadline for making the election has expired to beneficiaries or other persons beneficially interested in the estate. In the situation where the will bequeathed the Property to a testamentary trust, CRA considered that:

To the extent that the testamentary trust is, under applicable private law, a beneficiary of the estate at the time of the transfer or distribution of the Property by the estate, the testamentary trust could be considered a beneficiary or a person beneficially interested in the estate of the deceased individual for the purposes of subsection 70(3).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 70 - Subsection 70(3) a testamentary trust could be a beneficiary or beneficially interested in an estate 98

10 October 2014 APFF Roundtable Q. 4, 2014-0538231C6 F - 2014 APFF Roundtable, Q. 4 - Beneficially interested

legatee by particular title is included notwithstanding priority over heirs

Can a legatee by particular title referred to in s. 808 of the Quebec Civil Code be considered a person beneficially interested pursuant to subsection 248(25)? CRA stated (TaxInterpretations translation):

[D]espite the fact that a particular legatee has payment priority over the heirs under certain provisions of the Civil Code of Québec, the fact remains that a particular legatee holds a beneficial interest in a succession within the meaning of subsection 248(25).

10 October 2014 APFF Roundtable, 2014-0538021C6 F - Meaning of beneficiary

Propep applied: beneficiary under s. 55(5)(e)(ii) included beneficially interested per s. 248(25)(a)

In Fiducie Famille Salammbô c. Ville de Montréal (2011 QCCQ 11322), a mutations tax case, the Court found that potential non-designated beneficiaries should not be taken into account as beneficiaries at the moment of registration of the land transfer. In considering whether a person is related to each beneficiary under a trust, does CRA accept that it should consider only the persons who have been designated as beneficiaries at the particular time?

CRA stated:

[Propep]… interpreted the term "beneficiary" in subparagraph 256(1.2)(f)(iii) based on the broad concept of "income interest" in subsections 108(1) and 248(1) and taking into account the expression "beneficially interested" in subsection 248(25).

The CRA considers that the courts would adopt this expanded sense of the concept of beneficiary for purposes of subparagraph 55(5)(e)(ii). ... Consequently, the position stated at the 2004 APFF Conference [2004-0086961C6] on the meaning of "beneficiary" for the purposes of subparagraph 55(5)(e)(ii), which was to disregard subsection 248(25), is not valid.

For the purposes of subparagraph 55(5)(e)(ii), as the term "beneficiary" is not defined in the Act, it would be interpreted in the light of its meaning under applicable private law. The definition of "beneficially interested" in subsection 248(25) would also be interpreted in the light of the applicable private law.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(5) - Paragraph 55(5)(e) - Subparagraph 55(5)(e)(ii) beneficiary under s. 55(5)(e)(ii) includes beneficially interested under s. 248(25)(a) 260

8 October 2004 APFF Roundtable Q. 28, 2004-0086961C6 -

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(5) - Paragraph 55(5)(e) - Subparagraph 55(5)(e)(ii) s. 248(25)(a) does not expand "beneficiary" in s. 55(5)(e)(ii) 61

S1-F5-C1 - Related persons and dealing at arm's length

1.31 The following are examples of situations where an individual is beneficially interested in a trust:

  • a) trust income is payable to the individual;
  • b) income is held in trust and will be paid upon the individual's attainment of a certain age;
  • c) the individual is one for whom a preferred beneficiary election may be made;
  • d) the individual is one of a class who has a remainder interest under the trust; or
  • e) the individual has contributed property to the trust (for example, the settlor of the trust) and may, by virtue of the existence of a power of appointment, be added as a beneficiary of the trust at a later date.

1.32 An individual is beneficially interested in the trust in the circumstances described in ¶1.31(b) even if the individual's right to receive income ceases if the individual should die before attaining the specified age. Similarly, an individual is beneficially interested in the trust in the circumstances described in ¶1.31(c) even if the trustees have full discretionary powers concerning the distribution of the capital or income of the trust so that the individual may in fact receive nothing from the trust.

26 June 2012 External T.I. 2011-0417391E5 F - Bien remis à une fiducie

Where the trustees of a Quebec inter vivos trust have the power to appoint beneficiaries including a testamentary trust. However, a particular testamentary trust is not so designated. CRA referred to Art. 1282 of the Civil Code, which provided:

In the case of a personal or private trust, the power to appoint may be exercised by the trustee or the third person only if the class of persons from which he may appoint the beneficiary is clearly determined in the constituting act.

CRA stated (TaxInterpretations translation):

[A] trust created by will that is part of the category of persons from which the trustee can designate beneficiaries of an inter vivos trust has a beneficial interest by virtue of subsection 248(5).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(1) - Testamentary Trust appointment by inter vivos trust 266

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Beneficiaries Resident in Canada", Chapter 4 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016.

Meaning of right “as a beneficiary” (pp. 290-1)

[T]he term "beneficially interested" is defined exceptionally broadly in subsection 248(25)…[but] still requires the relevant person or partnership to have a right "as a beneficiary under a trust" to receive any of the trust's income or capital….

In Pilkington v. lnland Revenue Commissioners, [fn 58: [1964] AC 612 (HL).] the House of Lords concluded that the trustees could exercise the power of advancement at issue by transferring certain property of a trust to a newly settled trust fund for the benefit of one of the children of a beneficiary who had a life interest in the property, despite the fact that the advanced beneficiary's children and siblings were secondary or remainder capital beneficiaries under the new settlement….

Similarly, in Re Halsted's Will Trusts, [fn 61: [1937] 2 AII ER 570 (Ch.D.).] the court considered a direction by a testator that part of his residuary estate be held on trust to pay the income therefrom to one of his sons, and that after the son's death it revert to the testator's estate….The court held that the trustees had the power to settle the amount on a new trust for the benefit of the son during his lifetime and, following his death, for the benefit of his wife and child, concluding that the power of advancement could be exercised to benefit the named beneficiary's family members on the basis of this provision.

Michael Goldberg, "Not Quite Chicken Soup – Part II: Are Powers to Add and Remove Beneficiaries Safe for Canadian Family Trust Precedents", Tax Topics, Number 2175, November 14, 2013, p.1.

Effect of power to add and remove beneficiaries (PARB) (p. 2)

Does the inclusion of a PARB mean that pursuant to paragraph (1) of this definition everyone in the world would become beneficially interested in the trust? I would hope not as I'm not sure that, say, the Prime Minister of Malaysia [Note 2: Zoolander, Dir. Ben Stiller, 2001.] could be seen to have any "right … as a beneficiary under a trust" just because of the inclusion of such a clause. However, bad facts often lead to bad decisions, [Note 3: See Propep Inc. v. R., 2009 DTC 5170 (discussed below).] so I worry that the case that tests an issue will end up being the wrong one. Still, I would like to think a reasonable panel of judges and CRA officials would place sensible limits on paragraph (a) of the "beneficially interested" definition.

However, I think that the same reasonable panel of judges would find that where a trust includes a PARB, subclauses 248(25)(b)(iii)(A)(I)-(III) would likely result in anyone not at arm's length with the settlor/freezer being found to be beneficially interested in a trust with this type of power. Assuming that this is the case, then one needs to consider what provisions in the Act are impacted by a person's being beneficially interested in a trust (at least under paragraph (b)).

Interaction with s. 55(2) (p.2)

However, if the beneficially interested concept is applicable for purposes of subsection 55(2), then it appears that PARBs in trusts could cause those trusts to be unable to avail themselves of the exception to that provision, which might otherwise be available under paragraph 55(3)(a). The reason for this is that only trusts that meet the restricted related persons provisions in paragraph 55(5)(e) [Note 6: Generally, trusts where the only beneficiaries are the lineal descendants of an individual and/or registered charities, which is quite typical in many traditional Family Trust situations.] qualify for this exception. In this regard, although the CRA has indicated that "the concept of 'person beneficially interested' is irrelevant for the purposes of subparagraph 55(5)(e)(ii)", it also indicated that it "feel[s] that the right described in subparagraph 55(5)(e)(ii) I.T.A. and paragraph 248(25)(a) I.T.A. are fairly similar". [Note 7: See CRA document No. 2004-0086961C6, October 8, 2004.]

It is unclear whether the CRA's views regarding subparagraph 55(5)(e)(ii) would also be applicable to situations caught by paragraph 248(25)(b). Nevertheless, given the CRA's conclusion, it would appear that the inclusion of a PARB might well be problematic for the purposes of subsection 55(2).

Subsection 248(25.1) - Trust-to-trust transfers

Administrative Policy

10 February 2003 External T.I. 2003-014702 -

An election made by the former trustees, including an election under s. 259(3), will continue to be valid following a trust-to-trust transfer described in s. 248(25.1).

Subsection 248(25.4)

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Beneficiaries Resident in Canada", Chapter 4 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016.

Example of sale of ½ of capital interest plus ½ of right to enforce income payment (p.271)

[A]ssume that a beneficiary's capital interest in a unit trust initially consists of 1,000 units purchased for $10,000 on December 23, 2015. The trust has a December 31 year-end and has not made an election under subsection 132.11(1). It makes $400 of its income payable to the beneficiary on December 31, 2015 in respect of its 2015 taxation year. However, before the beneficiary's assignable right to enforce the payment of the $400 is satisfied, the beneficiary sells one-half of her capital interest in the trust (500 units and one-half of the right to enforce payment) to a third party for $5,700.

Under subsection 104(13), the beneficiary is required to include $400 in computing her income for the 2015 taxation year. The right to enforce payment of the $400 amount by the trust is treated as part of the beneficiary's capital interest in the trust under subsectionT08(l). Under paragraph (i) of the definition of "disposition" in subsection 248(1), a payment by the trust in satisfaction of the right is not a disposition. However, the sale of the 500 units in the trust is a partial disposition of the beneficiary's capital interest that includes part of the beneficiary's right to enforce a payment from the trust. Because the adjusted cost base of the right disposed of-is nil, the beneficiary realizes a capital gain of $200 (one-half of the total amount to which the right to enforce relates) on the sale to the third party.

Subsection 248(25.4) is intended to apply in these circumstances to provide an increase in the adjusted cost base of the beneficiary's capital interest in the trust by $200. Consequently, the total adjusted cost base of the 500 units sold is $5,200: $5,000 + $200. As a result

Subsection 248(26) - Debt obligations

Cases

Imperial Oil Ltd. v. Canada, 2004 DTC 6702, 2004 FCA 361, rev'd 2006 SCC 46

rev'd on other grounds 2006 SCC 46

S.248(26) had no application to the issuance of a U.S.-dollar debenture by the taxpayer because there was no doubt about the date upon which the taxpayer "issued" the debt evidenced by the debenture, or the "principal amount" of the debt at that time. Furthermore, even if s. 248(26) did apply, its effect would simply be to confirm the conclusion that the original principal amount of the debenture was the Canadian-dollar equivalent of its U.S. dollar principal amount at that time. S.248(26) did not say that, for income tax purposes, the principal amount of a debt denominated in a foreign currency was always equal to the principal amount of the debt translated at the date of issuance. Accordingly, s. 248(26) was not inconsistent with the conclusion of the Court that the principal amount of the debentures, in Canadian dollars, increased from the date of issuance, to the date of repayment, due to an appreciation in the U.S. dollar, thereby giving rise to a deduction under s. 20(1)(f)(ii).

Administrative Policy

20 May 2014 External T.I. 2013-0516121E5 F - Debt forgiveness

BIA settlement of unremitted GST interest

In finding that s. 80 would not apply to the settlement under Part III of the Bankruptcy and Insolvency Act of a debt for unremitted GST and QST, CRA stated (TaxInterpretations translation) that:

[T]he portion of the amount of the gain arising from the settlement of the unremitted GST and QST (including interest and penalties) would not be subject to …section 80 given that such [amounts]…would not be considered as a "debt issued" by the debtor under the terms of subsection 248(26)… .

Subsection 248(28) - Limitation respecting inclusions, deductions and tax credits

Cases

Bakorp Management Ltd. v. Canada (National Revenue), 2016 FCA 74

presumption against double generation of interest refund and reduction of interest payable

After noting (at para. 23) that the interpretation advanced by the taxpayer would have the effect of generating the accrual of refund interest to the taxpayer (respecting its 1995 taxation year) and eliminating of interest on underpaid tax (respecting its 1993 taxation year) for “a significant overlapping period in relation to the same amount,” Webb JA stated (at para. 23):

It could not have been the intention of Parliament that a single amount could, for the same period of time, give rise to both a reduction of interest payable on overdue taxes for one year and also give rise to refund interest for another year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 187 - Subsection 187(2) overpayment of Part IV tax for a subsequent year did not cut off interest for its underpayment in the previous year before application of the overpayment by CRA 373

Imperial Oil Ltd. v. Canada, 2004 DTC 6702, 2004 FCA 361, rev'd 2006 SCC 46

applies to capital gains

After finding that the taxpayer was entitled to deduct 75% of the difference between the Canadian- dollar equivalent of a U.S. dollar debenture at the time of its issuance by the taxpayer, and the Canadian-dollar equivalent of the amount repaid at maturity measured at the exchange date prevailing at the time of repayment under s. 20(1)(f)(ii), Sharlow J.A. found that the taxpayer was prohibited by s. 248(28) from deducting the remaining 25% under s. 39(2), by virtue of s. 248(28).

Holder v. Canada, 2004 DTC 6413, 2004 FCA 188

double deduction denied

The taxpayer designated an elected amount of $50,010 in an election under s. 110.6(19) in respect of shares that were non-qualifying real property and whose fair market value was nominal, with the result that there was a deduction of $50,000 under each of s. 110.6(21)(b) and s. 110.6(22). Sharlow J.A. found that as both adjustments were the same in quantum and were the result of the same event, it was appropriate to apply s. 4(4) to provide that only one deduction should be made. She stated (at p. 6415) that "the fact that two statutory provisions have different objectives cannot, by itself, justify an inference that double taxation was intended".

Kruco Inc. v. The Queen, 2001 DTC 668 (TCC), aff'd 2003 FCA 284

safe income

A proposed adjustment of the Minister to the safe income of a corporation from which the taxpayer received a deemed dividend, which entailed the exclusion of income inclusions to the corporations resulting from having claimed investment tax credits was found to result in an inappropriate double taxation of the same income first in the hands of the corporation and, second, in the hands of the taxpayer as a capital gain.

MNR v. Chrysler Canada Ltd., 92 DTC 6346 (FCTD)

double taxation to trust and employee

S.4(4) precluded the value of shares being taxed as income from employment in both the year of transfer of the shares to a trust (under s. 7(1)) and in the year of transfer of the shares or the proceeds to the employees (under s. 6(1)(g)). Strayer J. stated (p. 6349):

"While subsection 4(4) precludes this kind of double taxation without indicating which rule is to prevail, both paragraphs 7(3)(a) and the canons of interpretation lead us to the conclusion that the special regime provided in section 7 for the calculation and timing of deemed income should govern."

R. v. Inland Revenue Commissioners, ex parte Woolwich Equitable Buildings Society, [1990] BTC 490 (HL)

non-statutory principle

After referring (p. 500) to the "presumption against double taxation" and the "presumption that income tax, being an annual tax is payable only on the income of a particular year", Lord Oliver went on to state (p. 500) that these presumptions "are clearly rebuttable if sufficiently clear express words are used. But they can also be rebutted, as it seems to me, by circumstances surrounding the enactment of the particular legislation which lead to an inevitable inference that the Parliament intended, in using the words that it did, that these presumptions or principles should not apply."

Robertson v. The Queen, 90 DTC 6070 (FCA)

carve-out to the extent of previous recognition

Before going on to find that the amount of a non-statutory stock option benefit effectively was taxable at the time of exercise, notwithstanding that a real economic benefit also arose at the time of the granting of the option, Marceau J.A. stated:

"Obviously, double-tier taxation should not be imposed on gains from a single transaction, nor should the same benefit be taxed on two occasions. We certainly cannot have two benefits of the same type, both taxable under paragraph 6(1)(a) of the Act."

Canadian Pacific Ltd. v. The Queen, 88 DTC 6265, [1988] 1 CTC 429 (FCA)

Mahoney J. suggested that it was contrary to the scheme of the Act for the taxpayer to receive $17.6 million as a tax-free grant toward the cost of restoring railway lines in Western Canada, and at the same time to claim CCA.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.1) 35

The Queen v. Thyssen Canada Ltd., 87 DTC 5038, [1987] 1 CTC 112 (FCA)

The denial (by virtue of s. 18(4)) of the deduction for interest paid by the taxpayer to a non-resident, where that interest was subject to withholding, "did not result in double taxation or in anything resembling double taxation since, as a consequence of that denial, the respondent did not and will not have to pay tax twice on the same income."

Bye v. Coren, [1985] BTC 7 (HC), aff'd [1986] BTC 330 (C.A.)

question of construction

"There is ... no rule that the same sum cannot be subject to two separate taxes. Whether it is so subject is a matter of construction of the statute or statutes which have imposed the two taxes."

Furniss v. Dawson, [1984] BTC 71 (HL)

inherent double tax in corporate system

An "element of double taxation exists whenever a shareholder sells at a profit his shares in a company which has itself realized a capital asset at a profit. So I do not see any undesirable element of double taxation involved in the revenue's submission [which would potentially lead to that result]." (Lord Brightman)

The Queen v. Robichaud, 83 DTC 5265, [1983] CTC 195 (FCTD)

A husband and wife were unsuccessful in claiming each other as dependants.

Gillespie v. The Queen, 82 DTC 6334, [1982] CTC 378 (FCA)

The purpose of s. 63(4) (since repealed) was found to be preventing both a man and a woman from obtaining deductions from income for the same child care expenses when a child was in the joint custody of both.

Noranda Mines Ltd. v. The Queen, 82 DTC 6212, [1982] CTC 226 (FCTD), aff'd 85 DTC 5001, [1984] CTC 659 (FCA)

An argument that the phrase "taxable income earned in the year" should be interpreted as referring to taxable income before the deduction of any loss carry-backs, thereby permitting a 15% mining tax credit to be calculated on the basis of the larger grossed-up amount, was rejected "for the simple reason that the loss carry-back has already been considered in computing taxable income and failing a very clear provision of the Act to that effect, the same deduction should not be taken into account twice".

IRC v. Garvin, [1981] 1 WLR 793 (HL)

presumption against taxation both as capital and income receipt

It was stated, obiter, that "I can see a powerful argument being mounted to the effect that, if a receipt falls to be treated as income and taxed as such under one code, it must, by necessary implication, be exempt from liability to taxation as a capital receipt under another code". (Lord Bridge)

Locations of other summaries Wordcount
Tax Topics - General Concepts - Estoppel 48

R. v. Malloney’s Studio Ltd., 79 DTC 5124, [1979] CTC 206, [1979] 2 S.C.R. 326

"Mutuality of tax treatment of parties to the same transaction, or even the avoidance of double taxation have never been principles with which the draftsmen of taxing statutes have ever regarded themselves as saddled."

Quebec North Shore Paper Co. v. The Queen, 78 DTC 6426, [1978] CTC 628 (FCTD)

The court found that the Crown's method of computing the taxpayer's income during a year in which it changed its method of adjusting for depreciation "would be to compute the same amount twice for income tax purposes," and that method was rejected.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 10 - Subsection 10(2) 121

Perrault v. The Queen, 78 DTC 6272, [1978] CTC 395 (FCA)

The treatment of a single payment under different provisions of the Act as income in the hands of two taxpayers may result from an unfortunate arrangement of the taxpayer's affairs.

Denison Mines Ltd. v. Minister of National Revenue, 74 DTC 6525, [1974] CTC 737, [1976] 1 S.C.R. 245

no double deduction

Costs of removing ore were deductible in computing the taxpayer's profit. Since "no single disbursement can be reflected twice in the accounts", those costs could not also be treated as the capital cost of depreciable property.

F.S. Securities, Ltd. v. C.I.R. (1964), 41 TC 688 (HL)

presumption against

"[D]ouble taxation in itself is not something which is beyond the power of the Legislature to provide for when constructing its tax scheme ... [T]he law approaches the interpretation of the complicated structure of the code with a strong bias against achieving such a result. This, after all, is the general principle upon which rests the particular and well-accepted rule that a form of income which is made the subject of taxation under one of the five Schedules cannot be included, directly or indirectly, as a taxable subject under another Schedule ... Dividends that had borne tax or suffered deductions of tax ... before receipt are ... 'exhausted as a source of income', and the general principle applied to the construction of the provisions of the Income Tax code prevents there being brought in again, directly or indirectly, as a subject of taxation in the form of another class of taxable income" (pp. 697-698).

Minister of National Revenue v. Trans-Canada Investment Corporation Ltd., 55 DTC 1191, [1955] CTC 275, [1956] S.C.R. 49

In his dissenting reasons, Rand J., in finding that the intercorporate dividend deduction in s. 27(1) of the 1948 Act was not available to the taxpayer, stated (p. 1194):

"The deduction claimed is not permitted and it results in what may be called triple taxation. That is a consideration which inclines a court to a rigorous scrutiny of the enactment before it, but it does not permit an interpretation that supplies what Parliament must be taken to have deliberately omitted."

See Also

101139810 Saskatchewan Ltd. v. The Queen, 2017 TCC 3

taxation of same appreciation at individual shareholder level and corporate level under s. 55(2) was not double taxation

An individual (Case) held his 1/3 shareholding in a small business corporation through a personal holding company (8231) which also held 1/3 of its assets in the form of investment assets. In order to accomplish a sale of the SBC shareholding to the two other SBC shareholders, that shareholding was first split between two new wholly-owned corporations of Case (807 and 810), essentially using butterfly mechanics, with Case then selling his shares of 807 and 810 to the other two shareholders, and applying the capital gains exemption to a modest portion of the resulting gain. This plan did not work because the purchasers were unrelated, thereby precluding access to the butterfly or s. 55(3)(a) spin-off safe harbour.

CRA initially assessed both 8231, and 807 and 810, to convert their s. 84(3) deemed dividends realized on the cross-redemption of the shareholdings between them which arose under the butterfly mechanics, into capital gains (subject to a deductions in the case of 807 and 810 for the safe income of 8231 considered to be received by them.) However 15 months later, CRA vacated the s. 55(2) assessment of 8231 for reasons that are not explained – so that the only outstanding s. 55(2) assessments were of the corporations (807 and 810) acquired by the purchasers.

Case argued that the assessments of 807 and 810 also should be vacated on the grounds that essentially the same gain was reported by him. In addition to noting that this argument was not supported by the wording of s. 55(2), Favreau J stated:

I am inclined to favour a narrow construction of double taxation such that it arises where the same amount is taxed in the hands of the same person. Mr. Case and the appellants are not the same persons.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(b) s. 55(2) assessment of corporate tax on bad butterfly confirmed notwithstanding same accrued gain reported at individual shareholder level 452
Tax Topics - Income Tax Act - Section 55 - Subsection 55(5) - Paragraph 55(5)(f) 55(5)(f) designation may be made after assessment under s. 55(2) 245

Létourneau v. The Queen, 2010 DTC 1098 [at 3020], 2009 TCC 614 (Informal Procedure)

By operation of 96(1.1)(b), which applies notwithstanding any other provision of the Act, "allowances" received by a retired partner from his former firm had to be treated as partnership income rather than pension income. Lamarre J. further indicated at para. 28 that, if the income were treated pension income, that would be in addition to its treatment as partnership income - a double-counting of income, prohibited by s. 248(28).

Beament et al. v. Minister of National Revenue, 70 DTC 6130, [1970] CTC 193, [1970] S.C.R. 680

In finding, in his concurring reasons for judgment, that the contractual right of beneficiaries of an estate to enforce an agreement for the purchase by them of shares of the estate for the shares' par value rather than for the much higher amount that otherwise would have been the shares' fair market value, represented property of the beneficiaries, and therefore should be excluded in the valuation of property of the estate, Pigeon J. stated (at p. 6135) in his concurring reasons for judgment that:

"Parliament cannot have intended that the same value would be included in two separate items of 'property'."

Consoltex Inc. v. The Queen, 97 DTC 724 (TCC)

Bowman TCJ. found that because the cost of expenditure by the taxpayer on yarn qualified as SR&ED for purposes of s. 37 of the Act, those costs also could not be deducted as cost of sales under s. 9 of the Act, in light of former s. 4(4) of the Act.

Pezzelato v. The Queen, 96 DTC 1285 (TCC)

In obiter dicta, Bowman TCJ. accepted a submission that if the taxpayer were taxable under s. 80.4(1)in its 1988 taxation year in respect of imputed interest on a loan made to him by his employer, he should not also be taxed on a similar benefit under s. 6 for his 1989 taxation year based on an alleged reimbursement by his employer of the interest that accrued in 1988 on that loan.

Attis v. MNR, 92 DTC 1128 (TCC)

The exclusion in s. 15(2) for payments made as part of a series of loans or other transactions and repayments does not apply where there is a series of payments of bonuses and dividends. In light of the presumption against double taxation in s. 4(4), it could not have been intended that such repayments would be included in income both under s. 5 (in the case of bonuses) or s. 12(1)(j) (in the case of dividends), and under s. 15(2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.6) 76

Marcantonio v. MNR, 91 DTC 917 (TCC)

After finding that the Minister had properly reassessed the taxpayer to increase his income pursuant to s. 69(1)(a) by the amount of charges made to him by a related corporation ("Andrea") which were in excess of the fair market value of the goods purchased by him from Andrea, Mogan J. went on to indicate that he assumed that the Minister would attempt, when permitted by law, to reassess Andrea by reducing its income by an equivalent amount.

Administrative Policy

4 March 2015 External T.I. 2014-0562151E5 F - Frais de psychothérapie – dépense d'entreprise

potential choice between claiming therapy expense and credit

After finding that psychotherapy expenses potentially could be deducted in computing income of a professional practice, CRA stated:

The fact that psychotherapy fees could give rise to a credit under the Act does not preclude their deduction in the computation of income from your business. However…[under] subsection 248(28)… it would not be possible to deduct psychotherapy expenses under section 9 and claim a medical expense credit for the same amount under section 118.2. Finally, any personal portion of the psychotherapy expenses that will not be deducted in computing income from a business can give rise to a medical expense tax credit provided that all of the requirements under section 118.2 are met.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose “but for” test applied to determine deductibility/potentially creditable item can instead be expense 174

10 October 2014 APFF Roundtable Q. 21, 2014-0538091C6 F - 2014 APFF Roundtable, Q. 21 - Impact of the Descarries Case

will not impose double taxation under s. 84(2) and (3)

CRA indicated respecting any potential double taxation arising from the applicability of both s. 84(2) and (3) to a surplus stripping transaction that, in practice, CRA would avoid double taxation through applying s. 248(28)(a). See summary under s. 84(2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) Descarries failed to recognize scheme against indirect surplus stripping 696
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) Descarries failed to recognize breadth of s. 84(2) 517

30 October 2014 External T.I. 2013-0488881E5 - Upstream Loan

no double inclusion following FA creditor wind-up
See also 2013-0499121E5.

As a result of a wind-up of a 2nd tier FA following a s. 90(6) loan to Canco, there technically would be a double income inclusion to Canco under ss. 90(6) and (12). By virtue of s. 248(28)(a), only one of the two amounts would be included in Canco's income. See detailed summary of Scenario 6 under s. 90(9).

31 August 2011 External T.I. 2011-0415891E5 F - Increase in stated capital, stock dividends -55(2)

CRA will construe paragraph 55(2)(c) so that the amount deemed not to be a dividend is not taxed as a capital gain twice. Paragraph 55(2)(c) will be applied in the year of the increase of the stated capital of the shares; when the shares are sold, the capital gain will be reduced by the amount already included in income pursuant to paragraph 55(2)(c).

2003 Ruling 2003-002803 -

A lease is amended to add an option to purchase and to increase the annual lease payment by an amount that would be in excess of the fair market value rent in the absence of the option. The additional lease payment are treated for purposes of s. 49(5) as payments in respect of the extension of the original option, with the result that, for purposes of s. 49(1), such amount are deemed to be proceeds of disposition in respect of the grant of the option at the time of receipt of each such payment.

Upon the exercise of the option, the vendor by virtue of s. 248(28) will not be required to include in its proceeds of disposition the amounts included as capital gains under s. 49(5) and 49(1) except to the extent that pursuant to s. 49(4) it files amended tax return to exclude such amounts from the computation of its income for those taxation years as proceeds of disposition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 49 - Subsection 49(3) 155

29 April 2003 External T.I. 2003-00646 -

Allocations made to the spouse of a retired partner pursuant to s. 96(1.1) would, depending on the circumstances, also be included in the income of the retired partner under s. 56(2) or (4). S.248(28) would not prevent this result.

26 February 2003 External T.I. 2003-000879 -

Contrary to a previous position, CCRA has concluded that s. 248(28) does not preclude the application of s. 84(3) on the redemption of shares even where that redemption triggers an employment benefit that was deferred by s. 7(1.1): "The benefit under section 7 of the Act and the dividend computed under subsection 84(3) of the Act are determined as a result of different events and there is no amount that has been included in income under section 7 of the Act that is included a second time contrary to paragraph 248(28)(a) ... a taxpayer will generally have a capital loss on the disposition, which will already account for both the inclusion of the section 7 benefit and the subsection 84(3) dividend. This will mean the taxpayer will only be taxed once on the economic gain received as a result of the exercise of the option and the disposition of the shares."

11 April 2001 External T.I. 1999-000700 -

The following example was provided respecting a preferred share held by a financial institution whose paid-up capital (and apparently, redemption amount) was increased:

The Agency commented that "it would have to be established that the increase in fair market value of the shares was solely the result of the increase in paid-up capital". The Agency also noted that "the use of subsection 248(28) in this situation is cumbersome and may not provide an appropriate result in all circumstances".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 142.5 - Subsection 142.5(1) 53

2000 December TEI Roundtable Q. 24, 2000-005649 -

A Canadian resident corporation lends money to a foreign affiliate which, in turn, lends money to non-affiliated and non-resident corporations. In these circumstances, s. 248(28) does not affect the application of s. 17, which may cause an income inclusion in respect of the first amount under s. 17(1) and an income inclusion in respect of the second amount under s. 17(2). In these circumstances, "section 17 does not require a particular amount to be included in income more than once. That is, section 17 requires only one income inclusion in respect of any particular amount owing".

10 August 2000 External T.I. 2000-001687 -

"Where an employee has income from employment under paragraph 7(1)(a) related to the disposition, by virtue of subsection 7(1.1), of shares and a deemed dividend under subsection 84(3) of the Act related to the redemption of shares in the same or a different year, we are of the view that subsection 248(28) of the Act will apply so that there will be no income inclusion under subsection 84(3) of the same amount as a deemed dividend resulting on the redemption of the shares."

12 November 1992 Memorandum (Tax Window, No. 27, p. 7, ¶2330)

S.4(4) cannot be invoked to open up a year for reassessments that is statute-barred where an expense that relates to that year was claimed by a taxpayer in a subsequent year (although the fairness package can be utilized to this end where this is to the taxpayer's advantage). However, where a taxpayer has claimed expenses in a year that is statute-barred, the taxpayer will be precluded by s. 4(4) from claiming the same expenses in an open year.

11 June 1991 T.I. (Tax Window, No. 4, p. 8, ¶1297)

Under the proposed version of s. 4(4), interest to which s. 18(4) applied in a previous year will not be required to be included in income under s. 9(1) in the year it is forgiven. Where s. 80 applies, the forgiven interest will not be included in income under s. 9(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 80 - Subsection 80(4) 17

11 September 89 T.I. (February 1990 Access Letter, ¶1109)

There is no provision in the Act permitting a shareholder/manager to reduce the amount of salary received by him to the extent that such salary is not deductible by virtue of s. 67 to the payor corporation.

86 C.R. - Q.39

In the absence of abuse, RC will not tax the same amount twice.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 67 42

85 C.R. - Q.6

"Normally it is the Department's practice not to assess the same income twice."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) 17

84 C.R. - Q.46

A deemed dividend arising on the redemption of shares that are inventory will be excluded from the shareholder's s. 9 gain.

81 C.R. - Q.3

On the conversion of debt of an insolvent corporation into share capital, RC will not apply both ss.69(1)(a) and 80.

IT-369R "Attribution of Trust Income to Settlor"

An amount which has been attributed to a person under s. 75(2) normally will be excluded from the income of the beneficiaries and the trust.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2) 108

IT-462 "Payments Based on Production or Use"

In situations where ss.12(1)(a) or (b) can be applied in addition to paragraph 12(1)(g), RC will normally apply only the former provisions to include receipts from the sale of trading property in income, as double taxation is not intended.

Subparagraph 248(30)

Administrative Policy

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Non-advantage gift elements must still obtain

1.5 ... If the amount of the advantage exceeds 80% of the fair market value of the transferred property, the transfer might nevertheless qualify as a gift for tax purposes under paragraph 248(30)(b). To qualify, the taxpayer must be able to establish to the satisfaction of the Minister that the transfer was made with the intention to make a gift. It is the CRA’s view that even if the requirements in paragraph 248(30)(a) or (b) are met, the other requirements with respect to whether a transfer of property qualifies as a gift at law must still be met.

Subsection 248(32) - Amount of advantage

Cases

Canada v. Castro, 2015 DTC 5113 [at 6266], 2015 FCA 225, rev'g sub nom. David v. The Queen, 2014 DTC 1111 [at 3236], 2014 TCC 117

inflated charitable receipt not an "advantage"
rev'g on other grounds sub nom. David v. The Queen, 2014 DTC 1111 [at 3236], 2014 TCC 117

A group of individuals made cash contributions to a registered charity on the basis that the charity would issue charitable receipts to them for 10 times the amount of their contributions.

Scott JA agreed with Woods J below that the inflated charitable receipts did not constitute a benefit (so as to vitiate the cash amount of the contributions as "gifts" on general principles), and similarly found that the the inflated receipts were not "advantages" so as to invalidate the contributions under s. 248(30)(a). However, he denied a charitable credit for the cash contributions on the basis that the inflated amounts shown on the receipts rendered the receipts invalid.

See summary under s. 118.1(1) – total charitable gift.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts inflated charitable receipt not a "benefit" vitiating a gift (donative intent issue not properly raised) 145
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(2) inflated charitable receipt was invalid 171
Tax Topics - Income Tax Regulations - Regulation 3501 inflated charitable receipt was invalid 171
Tax Topics - Statutory Interpretation - Interpretation Act - Section 16 Regs read in context of enabling legislation 70
Tax Topics - Statutory Interpretation - Interpretation Act - Section 32 inflated charitable receipt not an "advantage" 114

Administrative Policy

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Advantage need not be direct and contemporaneous

1.9 ... An advantage might exist even though it is not received at the time of the gift. For example, it might have been received prior to the time of the gift or may be contingent or receivable in the future. The advantage might accrue either to the taxpayer or to a person not dealing at arm's length with the taxpayer. Furthermore, it is not necessary that the advantage be received or receivable from the qualified donee.

In addition, the amount of the advantage includes any limited-recourse debt in respect of the gift at the time the gift is made.

Value must be ascertainable

1.10 ... If the value of the advantage cannot be reasonably ascertained, the eligible amount of the gift cannot be determined and an official receipt cannot be issued.

Nominal advantages ignored

1.12 ... If the amount of an advantage received by the taxpayer does not exceed the lesser of 10% of the fair market value of the gifted property and $75, it will not be regarded as an advantage for the purposes of determining the eligible amount.

1.13 The nominal threshold does not apply to cash or near-cash items (for example, gift certificates and gift cards). An advantage is not considered nominal if its fair market value cannot be ascertained.

Advantage guidelines for fundraising events

1.14 ...

  • The attendance of celebrities at fundraising events will not be viewed as an advantage per se. ...
  • Participants might receive complimentary benefits (for example, pens and key chains) and/or be eligible for door and achievement prizes by simply attending the event. The value of any complimentary benefits and door and achievement prizes will be viewed as an advantage unless the total value of such items, per ticket sold or per attendee, is within the nominal threshold. For this purpose, the total value of door and achievement prizes will be allocated to all participants on a pro rata basis.
  • The value of the activity that is the object of the fundraising event is to be taken into account in determining the amount of the advantage. This would apply, for example, to the value of a meal at a fundraising dinner, a ticket to a charity concert, or green fees, cart rental and meal at a fundraising golf tournament. The value of the activity that is the object of the fundraising event will not be considered for purposes of applying the nominal threshold.

1.15 ...

Example 1

A registered charity holds a fundraising dinner for which 500 tickets are sold for $250 each.

  • A comparable meal could be purchased for $100, excluding harmonized and any other sales taxes and gratuities.
  • The total value of the door prizes is $3,500. Based on 500 tickets sold, the value per ticket is $7.
  • Each attendee receives a logo pen and a key chain with a total retail value of $10. ...

The total value of the door prizes and complimentary items is $17 per ticket sold, which is less than the lesser of 10% of $250 ($25) and $75. ...

The eligible amount is determined as follows:

Ticket price

$250

Less: meal

$100

Less: complimentary items/door prizes

$0

Eligible amount

$150

The amount of the advantage is $100, which is not more than 80% of the ticket price ($200). Accordingly, an official receipt may be issued for the eligible amount of $150.

Advantages on charity auctions

1.16 Generally, it is the CRA's position that there will not be an eligible amount with respect to items purchased at charity auctions on the basis that the bid determines the value of the various items put up for auction. ...

1.17 However, where the value of an item is clearly otherwise ascertainable (for example, there is a retail price for the item) and made known to all bidders in advance, an eligible amount might be present where the amount of the bid is in excess of the posted value (advantage). ...

Donation and auction of retail inventory

1.18 ...

Example 2

One of the items available at a charity auction is a mountain bike. The bike was donated by a corporate retailer from its inventory and has a retail value of $400. The retailer’s cost was $250. The $400 retail value is posted with the bike at the auction. Mr. X bids $500 and wins the bike.

Tax treatment for the successful bidder:
Since the retail value of $400 does not exceed 80% of the bid amount of $500, Mr. X is entitled to an official receipt for the difference. ...

Tax treatment for the corporate retailer:
If the donation of the bike represents a gift by the retailer, the retailer will be deemed to receive proceeds of $400, pursuant to paragraph 69(1)(b). The retailer will also have a donation deduction of $400. The retailer would also be entitled to deduct the $250 cost of the bike.

If the retailer characterizes the transfer of the bike as a promotion or advertising expense instead of a gift, the retailer will only be entitled to deduct the bike cost of $250.

Lotteries and raffles

1.19 ... [N]o part of the cost of a lottery ticket is a gift which may be receipted for income tax purposes.

Advantages at fundraising golf tournaments

1.21 ...[A] fundraising golf tournament.

  • ...The value of green fees is the regular green fee charge that would be paid by a non-member playing the course at the time of the event. No amount would be allocated to participants who are members of the particular golf course if members are not required to pay green fees.
  • ...The value of a cart rental is the regular cost of a cart rental at the particular golf course.
  • ...The value of a meal is the retail price charged by the golf course.

Eligible amount of membership fees

1.22 A taxpayer might pay a membership fee or a similar amount to an organization that is a qualified donee. If the payment exceeds the amount of any advantage received, there might be an eligible amount for receipting purposes.

Income Tax Technical News No. 26, 24 December 2002

Fund Raising Events or Activities

The guidelines below have general application to all fund raising events or activities:

  • The attendance of celebrities at fund raising events will not be viewed as an advantage per se. Any incremental amount paid for the right to participate in an activity with a particular individual (e.g., dinner, golf) would, however, not be viewed as a gift.
  • The value of any complimentary benefits provided to all participants for attending the event (e.g., pens and keychains) and the value of door and achievement prizes that all attendees are eligible for by simply attending the event will be viewed as an advantage unless the aggregate value of such items, per ticket sold, does not exceed the lesser of 10% of the ticket price and $75. For the purpose of establishing the eligible amount, and therefore the amount of the tax receipt, the value of door and achievement prizes will be aggregated and allocated on a pro rata basis to all participants.
  • For the purpose of determining which items will be viewed as an advantage for purposes of applying the de minimis rule, the CCRA will adopt the position that the value of the activity that is the object of the fund raising event, while an advantage to be taken into account in determining the eligible amount, will not be included for this purpose (e.g., the value of a meal at a fund raising dinner, the value of a comparable ticket for a concert, the value of green fees, cart rental and meal at a golf tournament

Subsection 248(34)

Paragraph 248(34)(a)

Administrative Policy

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Effect of repayment

1.40 A taxpayer might repay an amount on account of the principal of an indebtedness that was a limited-recourse debt in respect of a gift (original gift). In this situation, paragraph 248(34)(a) deems the taxpayer to have made a gift (deemed gift) to a qualified donee in the year of repayment. The eligible amount of the deemed gift is determined by taking into account:

  • the eligible amount of the original gift;
  • the amount of prior repayments; and
  • the eligible amount of all prior gifts deemed by paragraph 248(34)(a) to have been made in respect of the original gift.

However, a repayment financed by other limited-recourse debt or made by way of assignment or transfer of a guarantee, security or similar indemnity or covenant is not recognized for the purpose of paragraph 248(34)(a).

Subsection 248(35) - Deemed fair market value

See Also

Mariano v. The Queen, 2015 DTC 1209 [at 1331], 2015 TCC 244

attempted use of initial gift to step-up ACB under s. 69(1)(c)

The taxpayers were participants in leveraged donation transactions, which were intended to result in a step-up of the adjusted cost base of courseware licences (e.g., on how to use Microsoft products) under ss. 69(1)(c) and 107(2) (apparently with a view to avoiding s. 248(35)) before the licences were donated by them at a higher stipulated value to a registered charity ("CCA"). In particular, a Bahamian corporation ("Phoenix") acquired various courseware licenses at a modest cost, and gifted most of them to a Canadian–resident Trust. Ostensibly, the licences then were distributed to the taxpayers as capital beneficiaries of the Trust, with the taxpayers then donating them to CCA. The participants also made cash donations to a second registered charity ("Millennium"), which redonated 80% of those amounts to CCA. The taxpayers knew that their cheques to Millennium would not be cashed until they were accepted as capital beneficiaries of the Trust and, thus, would receive the licences. The taxpayers were issued charitable receipts for three or more times their cash outlay (and perhaps 800 times the cost to Phoenix of the licences).

Pizzitelli J did not directly address the question whether the "gift" of the licences by Phoenix to the Trust stepped up the licences' cost under s. 69(1)(c), but instead found against the taxpayers on a host of other grounds. See summaries under s. 118.1 - total charitable gifts, general concepts - sham, general concepts - fair market value, s. 104(1), and s. 107(2).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other courseware licences valued at modest initial cost, given relevant wholesale market and depressive effect of huge volumes purchased 289
Tax Topics - General Concepts - Ownership no acquisition of unascertained property 66
Tax Topics - General Concepts - Sham taxpayer involvement in deceit unnecessary 357
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) void for lack of certainty of objects 208
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2) delegation of power of appointment to promoter not authorized 222
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts no gift where no intent for impoverishment and where gifted property not yet identified 526

Administrative Policy

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Scope of deemed FMV rule in s. 248(35)

1.27 This deemed fair market value rule applies where the taxpayer acquired the property under a gifting arrangement that is a tax shelter as defined in subsection 237.1(1). Unless the gift was made as a consequence of the taxpayer’s death, this deeming rule also applies where the taxpayer acquired the property

a. less than three years before the day the gift is made; or

b. less than 10 years before the day the gift is made and it is reasonable to conclude that one of the main reasons the taxpayer acquired the property was to gift the property to a qualified donee.

1.28 The deemed fair market value rule also applies for the purposes of determining the proceeds of disposition under paragraph 69(1)(b), as well as the fair market value of the gifted property and the proceeds of disposition under subsections 110.1(2.1) and (3) and 118.1(5.4), (6) and (13.2).

Example 5

In an arm’s length transaction, an individual acquires 100 shares of a manufacturing company at the cost of $40 per share. The shares are not listed on a designated stock exchange and are considered capital property to the individual.

Two years later, the unlisted shares are worth $60 each. The individual gifts 50 shares to a qualified donee.

Tax consequences to the individual

Since the shares were acquired less than three years before they were gifted, subsection 248(35) applies to deem the fair market value of the shares to be $40 per share, representing the lesser of:

  • the individual’s adjusted cost base ($40 per share) and
  • the fair market value at the time the gift is made ($60 per share).

Therefore, having gifted 50 shares at $40 per share, the eligible amount of the individual’s gift (and the proceeds of disposition) is $2,000.

10 October 2014 APFF Roundtable Q. 10, 2014-0538641C6 F - 2014 APFF Roundtable, Q. 10 - Application of 248(35), (36) and (37)(g).

s. 248(35) does not apply where gifted property previously was bequested on s. 70(6) rollover basis

(a)…The provisions of subsection 248(36) do not apply to gifts acquired by reason of the death of an individual. Since…the property that is the subject of the gift by the taxpayer was acquired by reason of the death of an individual…the provisions of subsection 248(36) are not applicable. As the conditions in paragraph 248(37)(g) are satisfied, subsection 248 (35) does not apply.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(36) bequest on FMV basis 96

16 October 2012 External T.I. 2012-0454451E5 - Donation of flow-through shares

A query was received respecting the donation of flow-through shares of a private company which were issued as part of a gifting arrangment which was registered as a tax shelter. CRA noted that as the exception in draft s. 248(37)(d) does not apply to the donation of private company shares, draft s. 248(35) would apply to deem the amount of the gift to be the nil adjusted cost base of the shares under s. 66.3(3). Accordingly, the eligible amount of the gift was nil, and the proceeds of disposition of the share also were deemed to be nil under s. 69(1)(b)(ii) (respecting inter vivos gifts).

Bédard J proceeded to find abuse.

Paragraph 248(35)(b)

Subparagraph 248(35)(b)(i)

Administrative Policy

18 May 2017 Roundtable, 2017-0692361C6 - CLHIA 2017 Q4 - Gift of a life insurance policy

gifted policy deemed to have its nil adjusted cost basis to the NAL transferor to the donor

An individual transferred a life insurance policy, having a nil adjusted cost basis and cash surrender value to his company for nil proceeds, and then the company within the following three years gifts the policy to a registered charity at a time the policy has a higher adjusted cost basis and even higher fair market value. S. 248(35)(b)(i) deems the FMV of property that has been gifted by a taxpayer within three years of its acquisition to be equal to the lesser of its FMV and its cost (or of its adjusted cost base in the case of capital property, or of its adjusted cost basis in the case of a life insurance policy respecting which the taxpayer is the policyholder) for gift-receipting purposes. However, in this context, s. 248(36) deems the cost or adjusted cost base of the property to be the lower of its cost or adjusted cost base to (i) the taxpayer and (ii) any non-arm’s length person from whom it was acquired during the three-year period preceding the gift.

After noting that s. 248(36), unlike s. 248(35), refers only to the cost or adjusted cost base of property – and not to the adjusted cost basis of a life insurance policy - CRA stated that the adjusted cost basis:

of an interest in a life insurance policy, as defined in subsection 148(9), is generally a reasonable proxy for the "cost" of an interest in a life insurance policy for purposes of subsection 248(36).

Accordingly, the company’s gift to the charity is deemed by s. 248(35)(b)(i) to have a nil value given that s. 248(36) deems the “cost” to the company of its gifted property to be the nil adjusted cost basis it had to the individual.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(36) adjusted cost basis of policy is a reasonable proxy for its cost 432

Subsection 248(36) - Non-arm’s length transaction

Administrative Policy

18 May 2017 Roundtable, 2017-0692361C6 - CLHIA 2017 Q4 - Gift of a life insurance policy

adjusted cost basis of policy is a reasonable proxy for its cost

Mr. A acquired a life insurance policy on his life with a $1 million death benefit and then transferred it to his wholly-owned corporation (ACo) for no proceeds at a time that it had a nil adjusted cost basis (ACB) and cash surrender value (CSV). Thereafter, while the policy has a fair market value (FMV), ACB and CSV of $100,000, $50,000 and nil, respectively, ACo will donate this policy to a registered charity.

On the original transfer from Mr. A to ACo, s. 148(7) deemed him to dispose of the policy, and ACo to have acquired it, for nil proceeds, i.e., the greatest of the FMV of the consideration given, the ACB of the policy and the CSV of the policy at the time of transfer. On the subsequent gift, the greatest of these three amounts was the policy’s $50,000 ACB (i.e., no taxable gain). Under s. 248(35)(b)(i), the FMV of the policy for gift receipting purposes was the lesser of its FMV ($100,000) and its ACB ($50,000) – except that under s. 248(36), for s. 248(35) purposes, the cost or adjusted cost base, of the property to ACo immediately before the gift could be deemed to equal the lower of its cost and adjusted cost base to Mr. A. How would s. 248(36) apply to the gift?

CRA responded:

[A]s originally proposed, neither subsections 248(35) nor (36) included a specific reference to the ACB of a life insurance policy. However, proposed subsection 248(35) was later amended to include such a reference before it was enacted.

Notwithstanding that proposed subsection 248(36) was not similarly amended, it remains our view that the ACB of an interest in a life insurance policy, as defined in subsection 148(9), is generally a reasonable proxy for the "cost" of an interest in a life insurance policy for purposes of subsection 248(36). …

[S]ince ACo acquired the life insurance policy less than three years before it intends to donate the policy, the proposed gift would meet the condition in subparagraph 248(35)(b)(i) and be subject to the deemed FMV rule in subsection 248(35). In applying subsection 248(35), subsection 248(36) would need to be taken into account as ACo acquired the life insurance policy from a non-arm’s length person within a three-year period of the gift. In our view, the cost of the gifted property to ACo under subsection 248(36) would be nil (the lowest amount that is the ACB of the policy to ACo or Mr. A). Then, in applying subsection 248(35), the deemed FMV of the policy would also be nil (the lesser of the FMV of the policy at the time of the gift and the deemed ACB as determined under subsection 248(36)).

Words and Phrases
cost
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(35) - Paragraph 248(35)(b) - Subparagraph 248(35)(b)(i) gifted policy deemed to have its nil adjusted cost basis to the NAL transferor to the donor 287

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Scope of s. 248(36)

1.33 Under subsection 248(36), where a taxpayer gifts a property that was acquired from a non-arm’s-length person or partnership, the taxpayer’s cost of the gifted property for the purposes of applying the deemed fair market value rule might be less than its actual cost to the taxpayer. Subsection 248(36) applies if:

a. the deemed fair market value rule applies because the taxpayer acquired the gifted property within the 3-year or 10-year period described in ¶1.27(a) and (b); and

b. the gifted property had been acquired at any time in that 3-year or 10-year period by any person or partnership that does not deal at arm’s length with the taxpayer.

Where these conditions are met, the taxpayer’s cost (or in the case of capital property, the adjusted cost base) of the gifted property immediately before the gift is made is deemed to be the lowest of the cost or adjusted cost base, as the case may be, to:

  • the taxpayer, or
  • the non-arm's-length person or partnership immediately before the person or partnership disposed of the property.

However, subsection 248(36) does not apply where the taxpayer acquired the property as a result of the death of an individual.

10 October 2014 APFF Roundtable Q. 10, 2014-0538641C6 F - 2014 APFF Roundtable, Q. 10 - Application of 248(35), (36) and (37)(g).

bequest on FMV basis

…(b)… Gifts of property acquired in the circumstances contemplated in subsection 70(5) are not included in the list provided in paragraph 248(37)(g). Consequently, subsection 248(35) may apply if all conditions provided therein are satisfied. If the property that is the subject of the gift by the taxpayer was acquired during the three-year period ending at the time of the donation from a person with whom the taxpayer did not deal at arm's length, but the property was acquired by the taxpayer by reason of the death of an individual, as in the situation described, subsection 248(36) would not apply.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(35) s. 248(35) does not apply where gifted property previously was bequested on s. 70(6) rollover basis 61

Subsection 248(37)

Paragraph 248(37)

Paragraph 248(37)(e)

Administrative Policy

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Scope of s. 248(37)(e)

1.30 A taxpayer might transfer a property (transferred property) to a corporation controlled by the taxpayer (or by a person related to the taxpayer or a group of persons each of whom is related to the taxpayer) in exchange for shares issued by the corporation. If the taxpayer subsequently gifts those shares to a qualified donee, the deemed fair market value rule will not apply to the gifted shares if this rule would not otherwise have applied had the transferred property been gifted by the taxpayer instead of the shares.

Paragraph 248(37)(f)

Administrative Policy

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Scope of s. 248(37)(f)

1.31 Another exception to the deemed fair market value rule exists for certain property gifted by a corporation to a qualified donee. This exception applies if the property was transferred to the corporation under subsection 85(1) or (2) by a shareholder that controlled the corporation or by a shareholder who was related to a person or each member of a group of persons that controlled the corporation. The deemed fair market value rule will not apply to the gifted property if this rule would not otherwise have applied had that property been gifted by the shareholder instead of the corporation.

Subsection 248(38)

Administrative Policy

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Purpose and scope of s. 248(38)

1.34 Subsection 248(38) is intended to prevent a taxpayer from artificially increasing the cost of a property by entering into transactions designed to circumvent the application of the deemed fair market value rule. Subsection 248(38) deems the eligible amount of a gift to be nil if it can be reasonably concluded that the particular gift relates to a transaction or series of transactions:

  • one of the purposes of which is to avoid the application of the deemed fair market value rule; or
  • that would otherwise result in a benefit to which the general anti-avoidance rule in subsection 245(2) applies.

Subsection 248(39)

Administrative Policy

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Scope of s. 248(39)

1.35 Subsection 248(39) prevents a taxpayer from avoiding the application of the deemed fair market value rule by disposing of a capital property or an eligible capital property (the substantive gift) to a qualified donee and gifting the proceeds of disposition (or any property substituted, directly or indirectly for the proceeds of disposition) to the qualified donee, rather than gifting the property itself. Subsection 248(39) applies if:

a. the deemed fair market value rule would have applied if the substantive gift had itself been gifted to a qualified donee; and

b. the taxpayer gifts all or part of the proceeds of disposition or any such substituted property to the qualified donee or any person not dealing at arm’s length with the qualified donee.

1.36 Where the conditions described in ¶1.35 are met and the taxpayer gifts all of the proceeds of disposition or any such substituted property to the qualified donee, for the purpose of determining the eligible amount under subsection 248(31), the fair market value of the gifted property is deemed to be the lesser of:

a. the fair market value of the substantive gift; and

b. the cost of the substantive gift (or if the substantive gift is capital property of the taxpayer, its adjusted cost base).

Where the taxpayer gifts only part of the proceeds of disposition or any such substituted property, the fair market value of the gifted property is deemed to be the proportion of the lesser of (a) and (b) above that the fair market value of the gifted property is of the proceeds of disposition of the substantive gift.

1.37 Where the substantive gift is capital property, if the fair market value of the gifted property (determined without reference to section 248) exceeds its deemed fair market value as determined in ¶1.36, the excess amount will reduce the sale price of the substantive gift for purposes of determining the proceeds of disposition of property in subsection 13(21) and section 54.

Example of application

Example 6

In 2013, a taxpayer acquires a capital property with an adjusted cost base of $2,000. The property is not a property listed in the exceptions to the deemed fair market value rule in subsection 248(37).

In 2014, the taxpayer sells the property (substantive gift) to a registered charity for $2,500, which represents the property’s fair market value.

In 2015, the taxpayer makes a cash donation (gifted property) to the registered charity.

Computation of deemed fair market value

Donation of full proceeds

If, in 2015, the taxpayer gifts the full proceeds of disposition ($2,500) to the registered charity, the fair market value of the gifted property for purposes of determining the eligible amount of the gift under subsection 248(31) is deemed to be $2,000, which is the lesser of:

a. $2,000, the taxpayer’s adjusted cost base of the capital property, and

b. $2,500, the fair market value of the capital property.

Donation of partial proceeds

If, in 2015, the taxpayer makes a $500 cash donation to the registered charity, the fair market value of the gifted property for purposes of determining the eligible amount of the gift under subsection 248(31) is deemed to be $400. This amount is computed as the lesser of (a) and (b) above multiplied by the proportion of the fair market value of the gifted property is of the fair market value of the capital property, as follows:

$2,000 x $500/$2,500 = $400

Further, for the purposes of determining the proceeds of disposition of the substantive gift, the sale price of the substantive gift ($2,500) is reduced by the difference between the fair market value of the gifted property ($500) and its deemed fair market value ($400). In this example, the proceeds of disposition of the substantive gift will be reduced to $2,400 ($2,500 - ($500 - $400)).

Subsection 248(41)

Administrative Policy

S7-F1-C1 - Split-receipting and Deemed Fair Market Value

Examples of relevant information

1.41 Subsection 248(41) provides that the eligible amount of a gift made by a taxpayer is nil if the taxpayer fails to inform the qualified donee, before the issuance of an official receipt in respect of the gift, of any information that would cause the eligible amount of the gift to be less than the fair market value of the gifted property for the purposes of subsection 248(31), (35), (36), (38) or (39) (determined without reference to subsections 248(35), 110.1(3) and 118.1(6)). Information that might be relevant includes, but is not limited to:

a. length of time for which the property was held;

b. whether it was acquired as part of a tax shelter arrangement or from a non-arm’s-length party; and

c. whether the taxpayer engaged in a transaction or series of transactions to avoid the deemed fair market value rule.