Tuesday, June 19, 2007

Subsection 75 (2) Attribution Rule

The Income Tax Act (Canada) has various rules, called attribution rules, that may require you to pay tax on income or capital gains on assets after you have transferred the assets to another person or to a trust in some circumstances. One of these rules is set out in subsection 75(2) of the Income Tax Act. Simpson Wigle LLP has a good article on their Tax News blog posted by John Loukidelis about subsection 75 (2). He sets out some of the ways you can get caught by the rule when you contribute assets to a trust, as well as the consequences of running afoul of the rule.

He summarizes subsection 75 (2) as follows:
Subsection 75(2) of the Income Tax Act[1] is an attribution rule that can apply in respect of property (or property substituted for that property) contributed to a trust by a person (the “contributor”). The subsection will apply if the property “is held on condition” that it
(1) may revert to the contributor,
(2) may pass to persons to be determined by the contributor, or
(3) shall not be disposed of except with the contributor’s consent or in accordance with his or her direction.

For those of us who are not tax specialists, this stuff isn't simple, but Mr. Loukidelis explains the rule clearly and concisely. You can read it here.

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