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18 February 2002 External T.I. 2000-0046075 - Trust Affiliated with a Corporation
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104(1) 251.1 40(3.6)
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Text of Severed Letter
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Our Comments
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether a trust could be an affiliated person with a corporation for purposes of subsection 40(3.6) of the Act.
Consistent with previous positions.
XXXXXXXXXX 2001-004607
Fouad Daaboul
Dear XXXXXXXXXX:
Re: Technical Interpretation, section 251.1 and subsection 104(1) of the Income Tax Act
This is in reply to your letter of September 9, 2000, wherein you requested our comments on the above-mentioned provisions of the Income Tax Act (the "Act"). We regret the delay in replying to your letter.
Would the Canada Customs and Revenue Agency (the "CCRA") consider a reference to a trust as anything other than a reference to the trustees in determining whether a trust is affiliated with a corporation? And, if the context were to require that the reference to a trust were other than to the executors, trustees, etc., then what specific other thing would the words refer to?
You mentioned in your letter that these concerns have particular relevance to whether a trust can carry back a loss in the final year of death under subsection 164(6) of the Act without suspension of the loss under subsection 40(3.6) of the Act. You also indicated that, after having reviewed the Explanatory Notes Relating to Income Tax issued by the Department of Finance in March 2001, you have concluded that the amendment adding "unless the context otherwise requires" to subsection 104(1) of the Act was not meant to change the traditional means of looking at a trust, but was for clarification only when a literal interpretation of trust being trustees would not make sense in context.
We agree with your view that the purpose of the amendment to subsection 104(1) of the Act does not constitute a fundamental change where the term trust is used in the Act. Although a reference to "trust" generally refers to the term "trustee", the amendment recognizes that, in a particular context, there are references to "trust" in the Act that are meant to indicate a trust arrangement, rather than the persons who are responsible for the operation of the arrangement.
For purposes of the Act, a reference to a trust or estate in subsection 104(1) of the Act, can be a reference to a person or body, referred to in the said subsection or in the definition of "legal representative" in subsection 248(1) of the Act, having ownership or control of the trust property. The question of whether any particular person would be considered to be a reference to a trust or estate is one of fact, and such a determination could only be made following consideration of factors and circumstances such as the trust deed, the common law, and the trust law.
With respect to the application of the definition of "affiliated persons" in subsection 251.1 of the Act, in the context of a trust or estate, we reiterate the CCRA's position as given in answer to question 28 of the APFF 2001 Conference Round Table as follows:
Pursuant to paragraph 251.1(1)(b) of the ITA, a trust is affiliated with a corporation when it controls the corporation directly or indirectly, in any manner whatever or when it is a member of an affiliated group of persons that controls the corporation directly or indirectly, in any manner whatever. A trust and a corporation are also affiliated when the trustee of the trust personally controls the corporation. Two or more trusts having the same trustee are affiliated with themselves pursuant to paragraph 251.1(4)(a) of the ITA, and each of these trusts is also affiliated with any corporation controlled by the trustee ... In the same way, a trust is affiliated with a partnership when it has a majority interest in the partnership, pursuant to paragraph 251.1(1)(e) of the ITA.
As a result of these positions, it follows that a loss incurred by a trust on the disposition of a share of the capital stock of a corporation would be denied by subsection 40(3.6) of the Act if, immediately after the disposition, the trustee or any other person that the term "trust" in subsection 104(1) of the Act may refer to, is affiliated with the corporation.
We trust our comments will be of assistance.
Alain Godin
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1)
"unless context otherwise requires"
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Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1)
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