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R. Nanner (613)957-3494 March 14, 1988
Dear Sirs:
Re: Subsections 48(3) and 107(1.1) of the Income Tax Act ("Act")
This is in reply to your letters of May 29 and August 3, 1987 wherein you referred to our reply dated April 24, 1987. Upon further deliberations, we have re-evaluated our position on the apparent conflict between subsections 48(3) and 107(1.1) of the Act with respect to their applicability to a capital interest in a non-resident trust owned by a resident of Canada (which was acquired prior to his becoming resident).
Whether or not a person has a beneficial interest in a trust would be determined by reference to the laws of the country in which the trust was created. However, provided a taxpayer had a capital interest in a non-resident trust at the time he became resident of Canada, we are of the view that subsection 48(3) of the Act would be applicable in determining the adjusted cost base of his interest and subsection 107(1.1) would not apply.
The foregoing is our best interpretation of the law as it generally applies and does not bind the Department.
Yours truly, for Director Financial Industries Division Rulings Directorate