6 August 1996 External T.I. 9523895 - DISTRIBUTION BY TRUST NOT RESIDENT IN CANADA

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 a distribution from a personal trust not resident in Canada of the proceeds from the sale of a capital asset would be a "distribution of capital" for purposes of subparagraph 104(13)(c)(ii)?

Position:

Such a determination would have to be made based upon all of the facts relevant with regard to a distribution made in a particular situation.

Reasons:

Nature of determination.

		952389
XXXXXXXXXX		A.A. Cameron

Attention: XXXXXXXXXX

August 6, 1996

Dear Sirs:

Re: Paragraph 104(13)(c) of the Income Tax Act (the "Act")

This is in reply to your request for a technical interpretation concerning the above provision of the Act. We apologize for the delay in our response.

You have referred to a hypothetical situation involving a "foreign trust", which is a personal trust within the meaning assigned that term in subsection 248(1) of the Act, in circumstances where neither the rules contained in subsection 94(1) of the Act nor the provisions of subsection 94.1(1) thereof have application. In particular, you have requested "clarification of the treatment where such a foreign trust realizes a capital gain during the year and distributes the proceeds to the beneficiary." You have also indicated that you understand that, "under trust law a distribution of the proceeds of disposition of a capital asset would be considered to be a distribution of capital." It is our understanding that the "foreign trust" in question (the "Trust") would not be a trust resident in Canada for purposes of the Act.

We are unable to determine the consequences which would arise under the Act as a result of the above distribution as such a determination would have to be made with reference to all the facts relevant to a particular situation, e.g., the country of residence of the beneficiary in question, the provisions of the relevant trust document(s), consideration of whether the Trust constitutes a trust for purposes of the Act, nature of the beneficiary's interest in the Trust, etc. In addition, such consequences would also be subject to the effect of any bilateral tax agreement between Canada and a relevant foreign jurisdiction.

However, generally speaking, pursuant to the provisions of subsection 104(24) and paragraph 104(13)(c) of the Act all amounts paid in a taxation year to a beneficiary of the Trust, or to which the beneficiary was entitled in the year to enforce payment thereof, will be included in the income for that taxation year of the beneficiary except where such amount is proceeds of disposition of the beneficiary's interest in the Trust, or part thereof, or is a distribution of capital by a personal trust. As such, a distribution from the Trust to a beneficiary, which is not proceeds of disposition of the beneficiary's interest therein, will generally be included in the computation of the beneficiary's income regardless of the source to the Trust of the funds so distributed, i.e., from the sale of a capital asset or otherwise, subject to a determination that the distribution is a "distribution of capital" by the Trust. Whether a particular amount paid by the Trust to a beneficiary was paid as a distribution of capital would be a question to be determined with reference to all the facts relevant to a particular situation, including consideration of how the disposition of the capital asset, as well as the distribution to the beneficiary, were treated for taxation purposes in the relevant foreign jurisdiction. Therefore, in our view, the treatment under "trust law" of a distribution by the Trust of the proceeds of disposition of a capital asset would not be the only factor to be considered when determining the consequences arising under the Act as a result of such a distribution.

The above comments represent our general views with respect to the subject matter of your letter and are given in accordance with paragraph 21 of Information Circular 70-6R2 dated September 28, 1990. Accordingly, the above comments do not constitute an advance income tax ruling and are not binding on Revenue Canada.

Yours truly,

for Director
Resources, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch