Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether by virtue of new paragraph 251(1)(b) and subparagraph 251(2)(b)(iii), the beneficiaries of a trust which controls a corporation would be dealing at non-arm's length with the corporation.
Position: They would not.
Reasons: Although the beneficiaries and the trust are deemed not to be dealing at arm's length under paragraph 251(1)(b), the beneficiaries and the trust are not described as "related persons" under that definition in subsection 251(2) or under paragraph 251(1)(b). Accordingly, paragraph 251(1)(a) would not apply to deem the beneficiaries and the corporation to be dealing at non-arm's length.
August 24, 2001
Industrial Research Division HEADQUARTERS
Director Frank Fontaine
957-4364
Attention: Kevin Gibson
Financial Legislative Application Section
2001-009624
XXXXXXXXXX
This is in reply to your facsimile transmission of August 2, 2001 concerning ("XXXXXXXXXX"), XXXXXXXXXX ("the Trust") and the XXXXXXXXXX.
In our memorandum of May 24, 2001, file number 2001-006945 (the "Memorandum"), we referred to a proposed amendment to paragraph 251(1)(b) of the Income Tax Act (the "Act") that was enacted into law on June 14, 2001, applicable after December 23, 1998.
You have confirmed that:
(a) XXXXXXXXXX is controlled by the Trust which was created on XXXXXXXXXX,
(b) the beneficiaries of the Trust are the XXXXXXXXXX, and
(c) the particular taxation year of XXXXXXXXXX under review by the TSO commenced on XXXXXXXXXX and ended on XXXXXXXXXX.
You have concluded that:
(i) the Trust and XXXXXXXXXX are related by virtue of subparagraph 251(2)(b)(i) of the Act and are considered not to deal with each other at arm's length pursuant to paragraph 251(1)(a) of the Act,
(ii) under the particular enactment described above, the XXXXXXXXXX would be deemed not to deal at arm's length with the Trust under paragraph 251(1)(b),
(iii) by virtue of subparagraph 251(2)(b)(iii), the XXXXXXXXXX are related to XXXXXXXXXX and, therefore, are considered not to deal at arm's length with XXXXXXXXXX pursuant to paragraph 251(1)(a), and
(iv) as a result of the non-arm's relationship between XXXXXXXXXX and the XXXXXXXXXX, the non-arm's length requirements described in the definition of the terms "contract payment" and "qualified expenditure" under subsection 127(9) of the Act would apply to deny XXXXXXXXXX the investment tax credit on payments it claimed as contract payments.
1. We agree with your conclusion in (i) and (ii), and disagree with the conclusion described in (iii), above.
2. Under paragraph 251(1)(a), related persons are deemed not to deal with each other at arm's length. The words "any person related to a person" in subparagraph 251(2)(b)(iii) would not apply to a XXXXXXXXXX (beneficiary) as being related to the Trust, since paragraph 251(1)(b) specifically provides that a personal trust and any of its beneficiaries "are deemed not to deal with each other at arm's length...." and does not state that such parties must also be "related persons". There is no mention in subsection 251(2) that the definition of "related persons" includes a person and a trust described in paragraph 251(1)(b) or a trust and its beneficiary.
3. Accordingly, any evidence of a non-arm's length relationship between XXXXXXXXXX and the XXXXXXXXXX, in our opinion, would likely be based on the circumstances described under paragraphs (D) and (E) of our Memorandum and not from the application of paragraphs 251(1)(a) and (b) and subparagraph 251(2)(b)(iii) of the Act.
We trust our comments will be of assistance to you.
for Director
Business and Partnership Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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