30 August 1994 External T.I. 9407665 - TRUST FOR SELF-EMPLOYED PERSONS

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.

940766
XXXXXXXXXX D. Watson

Attention: XXXXXXXXXX

August 30, 1994

Dear Sirs/Mesdames:

Re: Benefits Trust for Self-employed Persons

This is in response to your letter of March 23, 1994 in which you requested our opinion on the interpretation of various sections of the Income Tax Act (the "Act"). Specifically, your questions relate to a situation in which a trust is established to provide benefits to a group of self-employed persons. These persons would fund the trust, directly or indirectly, and would be entitled to an income supplement, for example, in the event of short-term disability.

The situation described in your letter appears to involve actual proposed transactions with identifiable taxpayers. Assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. However, we can offer the following general comments with respect to the situation described.

1. Contributions to the trust

Each contributor to the trust would include in his or her income for tax purposes that portion of his or her income paid, directly or indirectly, to the trust. Such amounts would not be deductible in computing the income of a contributor for tax purposes.

2. Subsection 75(2)

If, by virtue of the terms of the trust indenture, there is any condition that would result in the reversion of the contributed property to a contributor, subsection 75(2) of the Act would apply. This situation may exist where the trust indenture includes provisions for its winding-up and the contributed property is to be returned to a contributor. On the other hand, subsection 75(2) of the Act would not be applicable if the property reverted to a contributor on the dissolution of the trust by operation of law.

3. Amounts payable to a beneficiary

If the trust is not a personal trust, as defined in subsection 248(1) of the Act, amounts payable to a beneficiary by the trust in respect of the capital interest (otherwise than as proceeds of disposition of the interest or part thereof) would reduce the adjusted cost base of the beneficiary's capital interest in the trust in accordance with paragraph 53(2)(h)(i.1) of the Act, unless the excepting conditions specified therein were met.

These comments represent our general views with respect to the subject matter of your letter and are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly,

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Policy and Legislation Branch