6 June 1994 External T.I. 9407905 - REVERSION OF TRUST PROPERTY

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.

		940790
XXXXXXXXXX	L. Holloway

Attention: XXXXXXXXXX

June 6, 1994

Dear Sirs:

Re: Technical Interpretation - Subsection 75(2) of the Income Tax Act

This is in reply to your letter of March 23, 1994, requesting a technical interpretation on the application of subsection 75(2) of the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993, in the following scenario.

• An inter vivos discretionary family trust is established by Mr. X, and he transfers to the trust $10,000.
• The initial trustees of the trust are Mr. and Mrs. X.
• The beneficiaries of the trust are the adult children of Mr. and Mrs. X.
• All trust decisions (including those concerning distribution of income or capital) must be made by a majority vote of the trustees.
• During his lifetime Mr. X has the power to appoint, remove or replace trustees at his discretion. Upon his death this power shall pass to the person so named in his will or if no one is so named, this power shall pass to Mrs. X.
• During the first year of the trust it earns $1,000 of interest income.

Specifically you have asked if either subparagraph 75(2)(a)(ii) or paragraph 75(2)(b) would apply in the above scenario. Further, if we were of the opinion that paragraph 75(2)(b) had application, you have asked if the introduction of a third trustee would change that opinion.

The situation described in your letter appears to be an actual fact situation related either to a past transaction or to an actual proposed transaction. If the situation described relates to an actual transaction which has already been implemented, the review of such transactions falls within the responsibility of District Taxation Offices. If, however, the situation described relates to an actual proposed transaction, it should be the subject of an advance income tax ruling. We can however provide you with the following general comments which we hope will be of assistance.

Our Comments

Where a settlor can direct the distribution of property which he or she transferred to a trust, subparagraph 75(2)(a)(ii) would apply.

Additionally, where the trust agreement provides that all decisions require a majority vote and there are only two trustees, one of whom is the settlor of the trust, it is our opinion that paragraph 75(2)(b) would apply as the property held by the trust could only be disposed of with the consent or in accordance with the direction of the settlor of the trust.

Where there are more than two trustees of a trust with similar terms as the one described in the previous paragraph, and the settlor/trustee has the power to appoint, remove or replace any trustee, then it is a question of fact whether the property held by the trust could only be disposed of with the consent or in accordance with the direction of the settlor/trustee.

These comments are made in accordance with paragraph 21 of Information Circular 70-6R2.

Yours truly,

for Director
Manufacturing Industries
Partnerships and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch