1999 Ruling 9902973 - VARIATION OF 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: Variation of a trust with unborn beneficiaries- can a Saunders & Vautier variation be made?

Matter is not free from doubt--representative agreed to get a court ordered variation;

Issue 2- do the proposed transactions change the fixed entitlements therefore precipitate a resettlement of the trust-

As the entitlements will not be changed, rather it is just the distribution date...no resettlement

Position:

Reasons:

XXXXXXXXXX 3-990297

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

We are writing in reply to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the trustee of the above-noted estate and its beneficiaries in respect of the proposed transactions described below. We also acknowledge receipt of your letters dated 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) "Child's Trust" means the trust created for the sole benefit of XXXXXXXXXX, the trust created for the sole benefit of XXXXXXXXXX and the trust created for the sole benefit of XXXXXXXXXX, individually.

c) "Children" currently means XXXXXXXXXX, collectively.

d) "Children's Trusts" means the trust created for the sole benefit of XXXXXXXXXX, the trust created for the sole benefit of XXXXXXXXXX and the trust created for the sole benefit of XXXXXXXXXX, collectively.

e) "Property" means the XXXXXXXXXX.

f) "Property Trust" means the trust created for the benefit of the Children.

g) "Testator" means XXXXXXXXXX.

h) "Trusts" means the Property Trust and the Children's Trusts, collectively.

i) "Trustee" means XXXXXXXXXX, the surviving spouse of the Testator.

j) "Will" means the Testator's last will and testament executed on XXXXXXXXXX in respect of which Letters Probate were granted by the 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. The Testator was a resident of Canada and died on XXXXXXXXXX.

2. Pursuant to paragraph XXXXXXXXXX of the Testator's Will, the Property Trust was created. In addition, paragraph XXXXXXXXXX of the Testator's Will, also established the Children's Trusts, each of which has one of the Children as its sole beneficiary.

3. The Trusts are resident in Canada, are "testamentary trusts" under subsection 108(1) of the Act and "personal trusts" under subsection 248(1) of the Act. The Property Trust does not have an account number and has never filed a T3 trust income tax return.

4. There are currently three Children ranging in age from XXXXXXXXXX. There are currently no grandchildren. The Children are all resident in Canada.

5. The current beneficiaries under the Property Trust are the three Children's Trusts. The beneficiaries under a Child's Trust are the Child (the "primary beneficiary") and the Child's children (the "contingent beneficiaries"), if any.

6. More specifically, pursuant to paragraph XXXXXXXXXX of the Will, the Testator directed the Trustee to hold an undivided one-half interest in the Property in the Property Trust for the Children as follows:

a)

XXXXXXXXXX

7. Pursuant to paragraph XXXXXXXXXX of the Will, the Testator also directed the Trustee to divide the remaining one-half of the residue of the Testator's estate in equal shares among the Children and hold such share of a Child in the Child's Trust as follows:

(a)
XXXXXXXXXX

i)

XXXXXXXXXX

ii)

XXXXXXXXXX

iii)

XXXXXXXXXX

iv)

XXXXXXXXXX

PROPOSED TRANSACTIONS

8. By written agreement, the Trustee and the Children will agree to vary the terms of the Trusts to defer the ultimate distribution date. The approval of the Superior Court of Justice of XXXXXXXXXX will be obtained for the variation to the Children's Trusts and the Property Trust pursuant to the Variation of Trusts Act, R.S.O. 1990, c.V.1. The proposed changes to the terms of the Trusts, as described in the relevant court applications and summarized below, will be the only changes made to the existing terms of the Trusts.

9. More particularly, paragraph XXXXXXXXXX of the Will, as described above, will be amended by replacing the reference to "age of XXXXXXXXXX years" in that paragraph with a reference to "age of XXXXXXXXXX years".

10. Paragraphs XXXXXXXXXX of the Will, as described above, will also be amended by replacing the references to "age of XXXXXXXXXX years" with references to "age of XXXXXXXXXX years".

PURPOSE OF THE PROPOSED TRANSACTIONS

11. The purpose of the proposed transactions is to ensure that the Trustee has the ability to continue to legally own the property for several more years so as to allow the Trustee to properly manage and operate the property thereby increasing the likelihood that its value is maximized. The Trustee has determined that this course of action is in the best interests of the beneficiaries. The proposed transactions in no way alter a beneficiary's overall entitlement under the Trusts but rather grant the Trustee flexibility in determining the timing of any capital payments.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate 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 variation to the Trusts' terms to defer the ultimate distribution date to the Children will not, in and by itself, result in a disposition for income tax purposes of any property of the Trusts or any Children's interest in the Trusts for purposes of section 106 or 107 of the Act.

B. For purposes of subdivision k of division B of Part I of the Act, no new trust will be considered to have been created as a result of the completion of the proposed transactions and the Trusts will be considered to continue.

C. The Trusts will not lose their status as "testamentary trusts" under subsection 108(1) of the Act as a result of the completion of the proposed transactions.

D. Subsection 245(2) of the Act will not be applied to redetermine the tax consequences of Rulings A to C above as a result of the proposed transactions described herein.

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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