| 24(1) | 5-902340.2 |
| R.D. Mundell | |
| (613) 957-2139 |
19(1)
November 7, 1990
Dear Sirs:
24(1)
This will reply to your letter of August 31, 1990 requesting a copy of our correspondence to Toronto District Office dated July 18, 1990 regarding the above trust.
We apologize for the delay in responding to your request.
In this regard we are unable to send you a copy of our memorandum which concerned the deductibility of legal and accounting expenses incurred in connection with the deemed dispositions provided for by Section 104 of the Income Tax Act. If you need a copy of the memorandum we suggest you contact Mr. G. Gaignery, Co-ordinator, Access to Information and Privacy, Revenue Canada, Taxation at 88 Metcalfe Street, Room 502, Ottawa, Ontario K1A 0L8.
Although we are not able to send you a copy of the memorandum, we do, however, provide the following general comments for your information.
Our Comments
As noted in paragraph 6 of Interpretation Bulletin IT-99R3, legal and accounting fees and other consultation fees relating to the structuring of a transaction are deductible depending on the nature of the underlying transaction (as income or capital). Generally, where accounting or legal consultations regarding a deemed disposal of fixed assets are entered into, the expenditures incurred would be considered to be capital in nature. Moreover, where the expenditures in question relate to tax planning discussions concerning the minimizing of income taxes, our view would be that they do not relate to any business activity.
In general, it is our view that legal and accounting fees incurred to minimize the effect of the 21 year deemed realization rule for trusts do not contribute towards any earning of trust income nor do they preserve or maintain any of the assets of the trust. Accordingly, the underlying transactions would be capital in nature.
We hope this will be helpful.
Yours Truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch