| 920817 | |
| 24(1) | A. Seidel |
| (613) 957-2120 |
Attention:19(1)
May 28, 1992
Dear Sirs:
This is in reply to your letter dated March 12, 1992 with respect to the application of subsection 249(4) of the Income Tax Act (the "Act") at the time that a trustee distributes the shares of a corporation from a trust to the beneficiaries.
It appears that your enquiry relates to specific taxpayers and certain transactions that they wish to carry out. Confirmation of the tax consequences of specific proposed transactions will only be provided in response to a request for an advance income tax ruling and therefore we are unable to comment on your specific situation. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2 dated September 28, 1990. Nevertheless, we are able to provide you with the following general comments.
Whether the distribution of shares of a corporation by a trust to the beneficiaries results in a change of control to which subsection 249(4) would apply is a question of fact which can only be determined by reviewing a specific trust agreement.
In Her Majesty the Queen v. Lusita Holdings Limited (84 DTC 6436, FCA) it was concluded that, notwithstanding that a person may have the right to require a trustee to resign and to name a replacement, such a right did not result in that person having control of the voting rights of the trust's shares. Accordingly, in the situation where the trustee(s) of a trust controlled the voting rights of the shares of a corporation prior to the distribution to the beneficiaries and the beneficiaries are not related to the trustee(s) at the time of the distribution, it is our view that there would be a change of control and subsection 249(4) would deem the corporation to have a fiscal year-end at the time of the distribution.
The Department's position as to whether a change in trustees results in a change in control is discussed in paragraph 5 of Interpretation Bulletin IT-302R2. While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and, therefore, are not binding on the Department in respect of a specific situation.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch