24 July 1989 Income Tax Severed Letter AC58230 - Attribution Rules

19(1)                          5-8230
                                        A.B. Adler
                                        (613) 957-8962

July 24, 1989

Dear Sirs:

This is further to our letter of May 23, 1989, and is in reply to your letter dated June 20, 1989, concerning the application of certain attribution rules in the Income Tax Act ("Act") to your example.

Thank you for the copy of the article by 19(1) which deals in part with disclaimers of personal liability on the part of trustees, and indicates that where a specific disclaimer is in a trust agreement and trustee's liability may be limited solely to the assets of the trust.

You suggested in your June 20, 1989 letter that even if the trustees in your example were found to be personally liable for the bank loan and subsection 74.5(7) of the Act were found to be applicable, then subsection 74.5(2) would apply to the loan in your example and attribution would be avoided.

We agree generally with your view that where a loan satisfies the requirements of subsection 74.5(2) of the Act at the time the loan was made the attribution rules under subsection 74.1(2) would not apply. Further, we continue to be of the view that it will be a question of fact whether the trustees in your example would be personally liable for the bank loan.

For your information, this Department may consider the use of section 245 of the Act in actual cases where the attribution rules may be found to be ineffective in achieving intended tax policy objectives. We trust that our comments will be of assistance to you.

Yours truly,

for Director Financial Industries Division Rulings Directorate