25 April 1994 External T.I. 9410075 - ASSOCIATION RULES-SHARES OWNED BY TRUST

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

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:

shares owned by a trust- association and double-deeming

Position TAKEN:

-no double counting occurs undder 256(1.2)(f)(ii) and 256(1.3)

Reasons FOR POSITION TAKEN:

1989 Round Table Q. 14
IT 64R3 Paragraphs 28 to 30

		941007
XXXXXXXXXX	V. Plant

Attention: XXXXXXXXXX

April 25, 1994

Dear Sirs:

This is in reply to your letter dated April 12, 1994 with respect to the application of section 256 of the Income Tax Act in the situation where the common shares of a corporation are held by a fully-discretionary trust, the beneficiaries of which include an individual's minor children.

Unless otherwise stated, all references to a statute are to the Income Tax Act S.C. 1970-71-72, c.63, as amended, consolidated to June 10, 1993 (the "Act").

You have requested our opinion as to whether the application of subparagraph 256(1.2)(f)(ii) of the Act and subsection 256(1.3) of the Act would result in a "double-deeming" effect in respect of the shares held by the trust in the determination of the number of shares held by the parent for the purposes of section 256 of the Act. As discussed April 21, 1994, your specific concern is regarding the reference in subsection 256(1.3) of the Act to "where ... shares of the capital stock of a corporation are owned by a child who is under 18 years of age", since no reference is made to shares deemed to be owned by the child. You would also like our opinion as to whether each parent would be deemed to own the shares that are deemed to be owned by a child.

Section 256 of the Act establishes certain rules for determining whether corporations are to be considered associated for purposes of the Act. Subparagraph 256(1.2)(f)(ii) of the Act provides for a "look through" whereby shares of a corporation that are held by a trust are deemed to be held by the beneficiaries of the trust. The result of the application of subparagraph 256(1.2)(f)(ii) of the Act is that more than one person can be deemed to own the same shares at the same time. We are of the view that the application of the provisions of subparagraph 256(1.2)(f)(ii) of the Act and subsection 256(1.3) of the Act would be considered from the point of view of each of the beneficiaries, on a person by person basis. Subparagraph 256(1.2)(f)(ii) applies for the purposes of subsections 256(1) to (5) of the Act. Consequently, in calculating the number of shares deemed to be owned by a parent, we are of the opinion that the shares deemed to be owned by the child would be taken into account, as well as those shares actually owned by the child. Our view is consistent with the intent of subsection 256(1.3) as evidenced by the following extract from the Technical Notes to Bill C-139 which were released on June 30, 1988: "New subsection 256(1.3) is an attribution rule which provides that shares of a corporation owned by a child, or treated as being owned by a child under one of the other provisions of the section, shall be treated as being owned by a parent of the child for purposes of determining whether the corporation is associated with any other corporation controlled by that parent." Since more than one person can be deemed to own the same shares at the same time, we are also of the view that each parent would be deemed to own the shares in question. We refer you to paragraphs 28 to 30 of Interpretation Bulletin IT-64R3, dated March 9, 1992, wherein two examples are given to illustrate the interaction of paragraph 256(1.2)(f) of the Act and subsection 256(1.3) of the Act.

These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch