29 October 1998 External T.I. E9822165 - FOREIGN ASSET REPORTING

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: Foreign asset reporting in section 233.3 of the Act

Position: Section 233.3 of the Act will apply for the 1998 and subsequent taxation years if the ACB of the specified foreign property exceeds $100,000.

Reasons: all conditions satisfied in section 233.3 of the Act.

XXXXXXXXXX 982216
M. Lemire
October 29, 1998

Dear XXXXXXXXXX:

Re: Foreign Reporting Rules

We are writing in reply to your letter dated March 7, 1998 in which you requested our opinion as to whether a T1141 Information Return in Respect of Transfers or Loans to a Non-Resident Trust (“Form T1141”) or a T1142 Information Return in respect of Distributions From and Indebtedness to a Non-Resident Trust (“Form T1142”) would be required to be filed in the scenario provided in your letter.

Facts situation

The facts situation provided in your letter can be summarized as follows:

An estate is established pursuant to the terms of the will of an individual who was not a resident of Canada at the time of his death. The remaining asset still to be settled in the estate is real property situated in the United States. The sole executor, pursuant to the terms of the will, is an individual resident in Canada. No income to the estate results from the real property or ever has. There are two individual beneficiaries under the estate, one of whom is a Canadian resident.

Our comments

Generally, Canadian resident persons who have transferred or lent property to a non-resident trust are required to report such transactions on Form T1141. Canadian resident persons may also be required to disclose details about distributions received from or indebtedness owed to a non-resident trust in which they have a beneficial interest on Form T1142. Moreover, Canadian resident persons (including trusts) that own “specified foreign property” with a “cost amount” greater than $100,000 are required to report their holdings on Form T1135 Interests in Foreign Property (“Form T1135”). “Specified foreign property” includes tangible or intangible property situated outside Canada. “Cost amount” to a taxpayer of any property that is capital property at any time generally means its adjusted cost base to the taxpayer at that time. Forms T1141 and T1142 are generally required to be filed only if the trust is not resident in Canada. However, a Canadian resident trust may be required to file Form T1135 described above if it owns specified foreign property.

In order to determine if any of such forms need to be filed in the scenario described above, you must first determine the residency of the estate. The Department's views with respect to this issue are contained in Interpretation Bulletin IT-447R, "Residence of a Trust or Estate." The residence of a trust or estate is a question of fact to be determined according to the circumstances in each case.

Generally, however, a trust or estate is considered to reside where the trustee, executor or other legal representative who manages or controls the trust or estate assets resides. Paragraph 2 of IT-447R outlines the powers or responsibilities which the Department considers in determining which representative has management and control of the trust or estate. In this regard a determination of an executor's powers and responsibilities as established under the terms of the will and any other related document would be imperative in the determination of the estate's residence. Where an individual exercises the management and control of a trust or an estate, the residence of that individual is determined based on the normal factual tests for determining the residence of an individual.

In the scenario described above, it is likely that the estate would be considered to be resident in Canada as the sole executor under the estate is a Canadian resident individual.

In the event you require a determination of the residence of the estate, forward all documentation, including a copy of the will of the deceased, to the International Taxation Office, Corporate and Trust Assessing Division, 2540 Lancaster Road, Ottawa, Ontario K1A 1A8, since that Division is responsible for making such determinations.

Assuming that the estate is resident in Canada, it is our view that neither Form T1141 nor Form T1142 are required to be filed in the scenario described above. However, the Canadian resident individual, as sole executor of the Canadian resident estate, may need to file Form T1135 as the estate owns real property situated outside Canada that would be “specified foreign property.” Form T1135 would be required to be filed if the adjusted cost base to the estate of the real property situated outside Canada exceeds $100,000. In the scenario described above, it is likely that the adjusted cost base to the estate of the real property would be equal to its historical cost to the estate; i.e., the fair market value of the real property at the time of the death of the deceased individual. Form T1135 is required to be filed for the 1998 and subsequent taxation years. For the 1998 taxation year, the filing deadline for Form T1135 will be April 30, 1999. Thus, if it is determined that Form T1135 is required to be filed for the 1998 taxation year of the estate in the above scenario, such form will need to be filed no later than April 30, 1999. Assuming the estate still owns real property situated outside Canada for the 1999 and subsequent years and the adjusted cost base of the real property exceeds $100,000, Form T1135 will also need to be filed within 90 days from the end of the taxation year of the estate. The taxation year of an estate may, but does not have to, coincide with the calendar year.

For your information, you will find attached a copy of Interpretation Bulletin IT-447R “Residence of a Trust or Estate.” Form T1135 is currently under review and should be available to the public sometime in January 1999. You may want to contact your local tax services office then to obtain a copy of it.

We regret that our comments above could not be more specific. We hope that this will be of some assistance to you.

Yours truly,

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