1999 Ruling 9824473 - WIND-UP OF A 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: 1. Will 107(2) apply to the distribution to the Widow? 2. Will the Children be considered to have disposed of their interests in the Trust? 3. Will 106(3) apply to the Trust?

Position: 1. Yes. 2. Yes but for no proceeds of disposition for the purpose of 107(1). 3. No.

Reasons: 1. After the release of the Children's interests in the Trust, the Widow is the sole beneficiary under the Trust. 107(2) and not 106(2) applies. 2. Valid releases of the Children's capital interests. Consistent with the position in IT-385R2 for releases of income interests. 3. 107(2) and not 106(2)or 106(3) applies when there is only one beneficiary under the Trust.

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XXXXXXXXXX 3-982447
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Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-noted trust and beneficiaries under the trust in respect of the income tax consequences arising out of the proposed transactions described below. We also acknowledge your correspondence of XXXXXXXXXX.

We understand that to the best of your knowledge, and that of the taxpayers involved, none of the matters considered in this ruling request are:

a) in an earlier return of the taxpayers or related persons;

b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayers or related persons;

c) under objection by the taxpayers or related persons;

d) before the courts; or

e) the subject of a ruling previously issued by this Directorate to the taxpayers or related persons.

In this letter, unless otherwise indicated, all statute references are to the Canadian Income Tax Act and Regulations (R.S.C. 1985, 5th Supplement, c.1, as amended) (the "Act"), and the following terms have the meanings specified:

a) "Child" currently means XXXXXXXXXX, individually.

b) "Children" currently means XXXXXXXXXX, collectively.

c) "Mr. A" means XXXXXXXXXX.

d) "Trustees" means XXXXXXXXXX.

e) "Widow" means XXXXXXXXXX surviving spouse, XXXXXXXXXX.

The names and addresses of the taxpayers who are parties to this ruling request, as well as the tax services office or tax centre where their returns are filed, are listed in Schedule A.

Our understanding of the relevant facts, proposed transactions and purpose thereof is as follows:

FACTS

1. Mr. A died on XXXXXXXXXX.

2. The terms of Mr. A's will provide that all of his property is to be held in a trust (the "Trust") for the use and benefit of the Widow during her lifetime and on the Widow's death to go in equal shares to Mr. A's Children.

3. The Trust is a testamentary trust under subsection 108(1) of the Act and a personal trust under subsection 248(1) of the Act. The Trust is also a trust to which subsection 70(6) of the Act applied as a consequence of Mr. A's death. The Trust is resident in Canada. The Trust does not have an account number and has never filed a T3 trust income tax return.

4. The Widow and the Children are residents of Canada, are all adults and none of them is under any legal disability.

5. One of the major assets of the Trust is a farm land situated in XXXXXXXXXX.

PROPOSED TRANSACTIONS

6. It is intended that all property of the Trust be distributed to the Widow and the Trust be terminated. More particularly, the Widow and the Children as beneficiaries under the Trust will enter into a written agreement with the Trustees to distribute all the assets to the Widow and to terminate the Trust. The terms of the agreement will be as follows:

"Now therefore in consideration of the sum of one dollar and natural love and affection, receipt of which is hereby acknowledged, the parties agree as follows:

• That the Children hereby release and surrender each of their respective interest in the Trust for no consideration and with no directions in relation thereto;
• That all of the assets of the Trust be distributed to the Widow;
• That the Trust, having no remaining assets, be wound-up; and
• That the Children do not oppose the distribution of the Trust assets to the Widow and the winding-up of the Trust."

7. No application will be made to the Court of Queens Bench for approval of the distribution of the assets to the Widow and the wind-up of the Trust as court approval is not required under the Variation of Trusts Act (XXXXXXXXXX).

8. Once the Children release and surrender each of their respective interest in the Trust, all the assets in the Trust will be distributed to the Widow in full satisfaction of her interest in the Trust. The farm land will be transferred into the Widow's name as the sole owner.

9. No payments will be made to the Children by either the Widow or the Trust to obtain their consent to the winding-up of the Trust.

PURPOSE OF THE PROPOSED TRANSACTIONS

10. The purpose of the proposed transactions is to wind-up the Trust and distribute all the Trust assets to the Widow.

RULINGS GIVEN

Provided that the above statements are accurate and constitute complete disclosure of all the relevant facts, proposed transactions and purpose thereof and the proposed transactions are carried out as described herein, our advance income tax rulings are as follows:

A. The provisions of subsection 107(2) of the Act will apply to the distribution described in paragraph 8 above.

B. Pursuant to subsection 107(1.1) of the Act, paragraph 107(1)(a) of the Act and the definition of cost amount in subsection 108(1) of the Act, the adjusted cost base to the Widow of her interest in the Trust, immediately before the disposition of her interest, will be deemed to be equal to the cost amount to the Trust of the assets immediately before the distribution.

C. The Widow will not be considered to have received any proceeds of disposition for the purpose of subsection 106(2) of the Act as a result of the proposed transactions.

D. Subsection 106(3) of the Act will not apply to the Trust as a result of the proposed transactions.

E. The Children will not be considered to have received any proceeds of disposition for the purpose of subsection 107(1) of the Act as a result of the proposed transactions.

F. Pursuant to subsection 107(1.1) of the Act and paragraph 107(1)(b) of the Act, the adjusted cost base to the Children of their respective interest in the Trust, immediately before the disposition of their respective interest, will be deemed to be nil.

G. Subsection 106(2) will not apply to the Children as a result of the proposed transactions.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R3, Advance Income Tax Rulings, and are binding on Revenue Canada provided that the proposed transactions are completed and effective within six months of the date of this letter.

COMMENTS

Nothing in this letter should be construed as implying that Revenue Canada has agreed to or accepted any tax consequences arising from the facts or proposed transactions described above other than those specifically confirmed in the rulings given.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch

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