15 November 2006 External T.I. 2004-0083461E5 F - Feb. 2004 Proposals - Paragraph 85(1)(d.11)
Principal Issues: New paragraph 85(1)(d.11) has been added by the Legislative Proposals released in December 2002, February 2004 and July 2005. Pursuant to the application rule set out regarding paragraph 85(1)(d.11), this provision applied in respect of dispositions that occur after December 20, 2002. Whether this application rule referred to the initial transfer of the eligible capital property ("ECP") by the taxpayer in favour of the taxable Canadian corporation under subsection 85(1) or to the subsequent sale of ECP by the said taxable Canadian corporation.
Position: On November 9, 2006, the Minister of Finance tabled a Notice of Ways and Means Motion that contains a new application rule set out with respect to new paragraphs 85(1)(d.11) and (d.12) (see subsection 86(4) of the Notice of Ways and Means Motion tabled on November 9, 2006). This new application rule answers the question raised above.
Reasons: Wording of the November 2006 Notice of Ways and Means Motion.
2004-008346 XXXXXXXXXX S. Prud'Homme (613) 957-8975 November 15, 2006
Dear Madam,
Subject: Request for technical interpretation of paragraphs 85(1)(d.11) and (d.12)
This is in response to your email of June 29, 2004, in which you requested our views on the application of paragraphs 85(1)(d.11) and (d.12) that were added to subsection 85(1) of the Income Tax Act (the "Act"), initially under the December 2002 and February 2004 Legislative Proposals Relating to Income Tax and subsequently under the July 2005 Legislative Proposals Relating to Income Tax (the "July 2005 Legislative Proposals").
(1) Your question regarding this file
Subsection 85(3) of the July 2005 Legislative Proposals provided that paragraphs 85(1)(d.11) and (d.12) applied in respect of dispositions made after December 20, 2002.
You wish to know whether the provision referred to in subsection 85(3) of the July 2005 Legislative Proposals referred to the initial transfer of the eligible capital property by the taxpayer to the taxable Canadian corporation pursuant to subsection 85(1) or to the subsequent sale of the eligible capital property by that taxable Canadian corporation.
(2) Our comments on this file
The Honourable Jim Flaherty, Minister of Finance, tabled on November 9, 2006, a Notice of Ways and Means Motion to introduce an Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of certain provisions of that Act, and to make related amendments to other Acts (the "November 2006 NWMM").
Under subsection 86(2) of the November 2006 NWMM, subsection 85(1) is amended by adding paragraphs 85(1)(d.11) and (d.12) after paragraph 85(1)(d.1). In addition, we note that subsection 86(4) of the November 2006 NWMM sets out a new transitional provision for the application of these new paragraphs 85(1)(d.11) and (d.12). The terms of subsection 86(4) of the November 2006 NWMM seem to us to clearly answer your question.
We apologize for the delay in responding to your request. We hope that our comments will be of assistance.
Best regards,
Stéphane Prud'Homme, Notary, M. Fisc.
For the Director
Corporate Reorganizations and Resource Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch