21 January 2002 External T.I. 2001-0097295 - Spousal Trust

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether a particular testamentary trust will qualify as a spousal trust, thereby enabling 70(6) to apply on the taxpayer's death?

Position: Question of fact.

Reasons: Provided that all of the criteria of 70(6) are met, the trust will qualify.

XXXXXXXXXX J.D. Brooks
2001-009729
January 21, 2002

Dear XXXXXXXXXX:

This is in reply to your letter of July 19, 2001, in which you queried whether a certain testamentary trust arrangement would constitute a spousal trust. We apologize for the delay of our response.

The situation set out in your letter relates to an actual situation and involves proposed transactions. Confirmation of the tax implications of proposed transactions is given only in reply to an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R4. While we are unable to comment on the particular situation described in your letter, the following general comments may be of assistance to you.

Subsection 70(6) of the Income Tax Act is a provision that may apply where capital property is transferred as a consequence of a person's death, to a trust for the deceased person's spouse where the trust is created by the deceased person's will. The deceased person must have been resident in Canada immediately before death. The property must vest indefeasibly in the trust within 36 months after the death, and the trust must be resident in Canada immediately after the time the property vested in the trust. Furthermore, the spouse must be entitled to receive all of the income of the trust that arises before the death of the spouse, and no person except the spouse may receive or obtain the use of any of the income or capital of the trust before the spouse's death. Where all of these conditions are met, non-depreciable capital property is transferred for deemed proceeds of disposition equal to the property's adjusted cost base to the deceased person immediately before the death.

The residency of a trust is generally determined by the residency of its trustees. For property to be vested indefeasibly in a trust, it generally means that the trust's ownership of the property is absolute and unconditional. Since the spouse must be entitled to receive all of the trust's income, the trustees cannot have any discretion to withhold
income from the spouse or to distribute income to anyone else during the spouse's lifetime. While it is not necessary to enable the trustees to encroach on capital for the benefit of the spouse, the trustees cannot have the discretion to distribute or make available any capital to anyone other than the spouse prior to the spouse's death. Further information is contained in Interpretation Bulletins IT-305R4, Testamentary Spouse Trusts, and IT-449R, Meaning of "Vested Indefeasibly". This technical information is available on the Canada Customs and Revenue Agency's website on the internet at www.ccra-adrc.gc.ca.

The comments above represent an expression of opinion which, as indicated in paragraph 22 of Information Circular 70-6R4, is not an advance income tax ruling and, accordingly, is not binding on the Canada Customs and Revenue Agency.

Yours truly,

T. Murphy, Manager
Trusts Section
International and Trusts Division
Income Tax Rulings Directorate

??