| 19(1) | File No. 5-7507 |
| D.Y. Dalphy | |
| (613) 957-2177 | |
| June 20, 1989 | |
| 19(1) |
Re: Section 94 of the Income Tax Act (the "Act")
This is in reply to your letter of January 23, 1989 concerning the interpretation of clause 94(1)(b)(ii)(c) of the Act.
In our view, a "person referred to in clause (i)(A) or (B)" is either a "particular person" who meets the criteria in subclause (A)(I), (II) and (III) or a "trust or corporation that acquired the property, directly or indirectly in any manner whatever" from a particular person described in clause (A) with whom it was not dealing at arm's length. The person's referred to in clause 94(1)(b)(ii)(C) of the Act are those described in clauses 94(1)(b)(i)(A) and (B) of the Act, not necessarily those described in subparagraph 94(1)(b)(i) of the Act. That is, they do not have to be the persons from whom the trust in subparagraph 94(1)(b)(i) acquired property.
In one of your examples, Mr. X is beneficiary of a non-resident trust (Trust #2) that was settled by a non resident trust (Trust #1) that was settled by a non-resident individual, Mr. A. Mr. X became a resident of Canada shortly after the trust was established. The trust deed of Trust #2 gave Mr. X a general power of appointment under will of trust assets. After he had been resident in Canada for 6 years, Mr. X died; in accordance with the appointment by will, Mrs. X (Mr. X's spouse who had been resident in Canada for 6 years) became the beneficiary of Trust #2.
In our view based on the available information, clause 94(1)(b)(ii)(C) of the Act would apply to both trusts since Mr.X's interest in Trust #2 (and #1) was acquired directly (and indirectly by the exercise of a power of appointment by a particular person described in clause 94(1)(b)(i)(A) of the Act (Mr. X).
We hope our comments will assist you.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch