2015-0594201E5 Election under 159(6.1)

Principal Issues: Is election under subsection 159(6.1) of the Income Tax Act (the “Act”) available in respect of tax payable as a result of a deemed disposition of resource properties pursuant to subsection 104(5.2) of the Act?

Position: Yes.

Reasons: Because of reference to paragraphs 104(4)(a) to (a.4), (b) and (c) in subsection 159(6.1) which is applicable to subsection 104(5.2).

Author: Srikanth, Vyjayanthi
Section: 66(15), 104(4), (a.1), (a.2), (a.3), (a.4), (b) & (c), 104(5), 104(5.2), 108(1), 159(6.1)

XXXXXXXXXX

                                          2015-059420
                                          V. Srikanth

July 29, 2015

Dear XXXXXXXXXX:

Re: Election pursuant to subsection 159(6.1) of the Income Tax Act (the “Act”)

This is in response to your correspondence of June 23, 2015, wherein you requested our views on whether an election pursuant to subsection 159(6.1) of the Act will be available with respect to a tax liability arising from a deemed disposition of resource property pursuant to subsection 104(5.2) of the Act.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations, dated August 29, 2014. Where the particular transactions are completed, the inquiry should be addressed to the audit division of the applicable Canada Revenue Agency Tax Services Office.

Subsection 159(6.1) states:

“Where a time determined under paragraph 104(4)(a), (a.1), (a.2), (a.3), (a.4), (b) or (c) in respect of a trust occurs in a taxation year of the trust and the trust so elects and furnishes to the Minister security … tax payable under this Part by the trust for the year, all or any portion of the part of that tax that is equal to the amount, if any, by which that tax exceeds the amount that that tax would be if this Act were read without reference to paragraph 104(4)(a), (a.1), (a.2), (a.3), (a.4), (b) or (c), as the case may be, may be paid in the number (not exceeding 10) of equal consecutive annual instalments that is specified by the trust in the election...”Accordingly, subsection 159(6.1) of the Act allows trusts to elect to pay income tax in up to 10 annual instalments where such tax liability arose in that taxation year as a result of a deemed disposition that occurred at a time that is specified in paragraph 104(4)(a), (a.1), (a.2), (a.3), (a.4), (b) or (c) of the Act.

Subsection 104(4) is applicable to each property of a trust (other than exempt property) that is capital property (other than excluded property or depreciable property) or land included in the inventory of a business of the trust. Rules dealing with depreciable and resource property are provided for in subsections 104(5) and (5.2) respectively.

Subsection 104(5.2) of the Act provides that each Canadian resource property and foreign resource property of a trust is treated, for specified purposes, as having been disposed of immediately before the end of a day determined under subsection 104(4), i.e., as indicated in paragraphs 104(4)(a), (a.1), (a.2), (a.3), (a.4), (b) or (c). 

Since subsection 159(6.1) specifically refers to tax liability arising on the occurrence of a time determined under paragraph 104(4)(a), (a.1), (a.2), (a.3), (a.4), (b) or (c) which is the time when a deemed disposition pursuant to subsection 104(5.2) occurs, an election under subsection 159(6.1) is possible in respect of tax liability arising from the disposition of property pursuant to subsection 104(5.2) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

Phil Kohnen
Manager, Trusts Section I

Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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