2022-0930081E5 Application of paragraph 251.1(4)(c)

Principal Issues: When interpreting subsection 251.1(1) of the Act does the interpretive rule in paragraph 251.1(4)(c) of the Act apply only when dealing with the word “trust”, as occurs in paragraphs 251.1(1)(g) and (h) of the Act, or does paragraph 251.1(4)(c) of the Act apply in interpreting subsection 251.1(1) of the Act wherever the person described is a trust.

Position: The interpretative rule in paragraph 251.1(4)(c) applies for the purposes of subsection 251.1(1) and not just those paragraphs where there is a reference to a trust.

Reasons: Based on the text of the legislation and the policy objectives of the provision as outlined in the explanatory notes.

Author: Witteveen, Tobias
Section: 104(1), 104(2), 251.1(1) and 251.1(4)

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                                                                                          2022-093008
                                                                                          T. Witteveen

June 9, 2022

Dear XXXXXXXXXX:

Re: Affiliated Persons Rule and Paragraph 251.1(4)(c)

We are writing in response to your email dated March 9, 2022 regarding the appropriate interpretation of subsection 251.1(1) and paragraph 251.1(4)(c) of the Income Tax Act (the Act). In your email you enquire if in interpreting subsection 251.1(1) of the Act the interpretive rule in paragraph 251.1(4)(c) of the Act applies only when dealing with the word “trust”, as occurs in paragraphs 251.1(1)(g) and (h) of the Act, or if paragraph 251.1(4)(c) of the Act applies in interpreting subsection 251.1(1) of the Act wherever the person described is a trust.

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 70-6R11, Advance Income Tax Rulings and Technical Interpretations.

Section 251.1 of the Act sets out rules for determining when persons are affiliated with one another, which is relevant to a number of provisions of the Act, most notably those restricting the realization of losses on certain transfers. Paragraph 251.1(4)(c) of the Act provides that for the purposes of section 251.1 of the Act:

“notwithstanding subsection 104(1), a reference to a trust does not include a reference to the trustee or other persons who own or control the trust property;”

The explanatory notes for the amendments to subsection 251.1(4) of the Act that included the introduction of paragraph 251.1(4)(c) of the Act indicate that one of the effects of the rules is that two trusts are not affiliated simply because they share the same trustee and that a person is not affiliated with a trust simply because that person is affiliated with the trustee of the trust.

Consistent with the language in the legislation and the policy objectives outlined in the explanatory notes the interpretive rule in paragraph 251.1(4)(c) should be taken into account when interpreting subsection 251.1(1) regardless of whether there is a specific reference to a trust in the paragraph being examined.

We trust that our comments will be of assistance to you.

Yours truly,

David Palamar
Manager, Reorganizations Section 1
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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