Words and Phrases - "revert"
9 March 2007 External T.I. 2006-0218501E5 F - Application de 75(2) lors d'une émission d'actions
Would s. 75(2) apply to dividends on shares of a corporation that are subscribed for by a trust where the corporation subsequently could become a beneficiary through being named as a beneficiary under a designation pursuant to a clause in the trust indenture providing that "any corporation controlled by Individual X may become a beneficiary" of the trust? CRA responded:
[S]ubsection 75(2) should not apply where a trust subscribes for shares of a corporation for consideration equal to their fair market value ("FMV"), notwithstanding that the corporation issuing the shares is or may become a beneficiary of the trust or has any of the powers described in subparagraph 75(2)(a), notwithstanding that the corporation issuing the shares is or may become a beneficiary of the trust or has any of the rights described in subparagraph 75(2)(a)(ii) or paragraph 75(2)(b). In our view, subsection 75(2) should only apply to a person who owned the property before it was held by a trust under either of the conditions set out in subsection 75(2). Since a corporation does not own its own shares before they are issued, it follows that subsection 75(2) will not apply to a corporation that issues shares to a trust for consideration equal to their FMV.
Canada v. Sommerer, 2012 DTC 5126, 2012 FCA 207
Before allowing the taxpayer's appeal from an assessment made on the basis that s. 75(2) applied to attribute a capital gain realized by an Austrian private foundation (founded by the taxpayer's Austrian father) to the taxpayer, Sharlow J.A. noted (at para. 38) that she considered it a "doubtful proposition" that the foundation was a trust, even though the taxpayer's counsel had not argued this alternative basis for overturning the assessment.
First, "an Austrian private foundation is a juridical person with the legal capacity to own property in its own right" and thus is similar to a corporation (para. 40). Second, nothing gave the taxpayer "a legal or equitable claim to the corporate property that is different from that of a shareholder...of a corporation" (para. 42).
Furthermore, there was nothing in the constating documents or Austrian law to support the proposition that the foundation was the corporate trustee of a trust, i.e., that its right "to deal with its property is constrained by any legal or equitable obligations analogous to those of a common law trustee" (para. 41).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(5) | 84 | |
| Tax Topics - Income Tax Act - Section 75 - Subsection 75(2) | does not apply to FMV purchases | 236 |
| Tax Topics - Treaties - Income Tax Conventions | treaty applies to economic double taxation | 356 |
| Tax Topics - Treaties - Income Tax Conventions - Article 13 | attributed gain not included | 415 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) | s. 75(2) should not be applied to attribute the same gain to 2 taxpayers | 115 |