| 24(1) | 5-901755 |
| W.C. Harding | |
| (613) 957-8953 |
19(1)
December 17, 1990
Dear Sirs:
This is in reply to your letter of July 23, 1990 in request of our opinion concerning the application of paragraphs 6(1)(g) and 107.1(b) of the Income Tax Act (the "Act"). We apologize for the delay in our response.
It is our opinion that the cost as determined under subparagraph 107.1(b)(ii), of a property acquired from an employee benefit plan (EBP) is not necessarily the amount that a recipient beneficiary must include in income pursuant to paragraph 6(1)(g) of the Act. While subparagraph 107.1(b)(ii) provides that the property's cost will be the greater of its fair market value (or "value") and the adjusted cost base of the beneficiary's relinquished interest in the trust, paragraph 6(1)(g) of the Act provides that the amount taxed to the employee will be the property's "value" less certain amounts including a beneficiary's contributions to the plan which, in most cases, will be equal the ACB of his interest in the trust.
When the provisions are followed, there should generally not be any adverse tax consequences to a beneficiary. In cases where shares are received, if the value of the shares is less than a beneficiary's contributions (his interest's ACB), nothing will be included in income pursuant to 6(1)(g) while the ACB of the shares will be increased to equal the ACB of the relinquished interest. This will leave him in the same position as if the shares had been acquired directly.
While we are not aware of any circumstances where the mechanics of the provisions do not function as intended, should such cases arise the Department would examine them on a case by case basis.
We trust these comments are satisfactory to your needs.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate