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: For personal reasons, an individual (“Individual A”) transferred the legal ownership of a property (land on which his residence was located) to his son-in-law (“Individual B”) in XXXXXXXXXX which was to be held “In Trust” until such time as Individual B was advised by Individual A on how to deal with the property. Individual A now wishes to have the legal ownership of the property registered in his name. Is there a disposition?
Position: Likely not
Reasons: The available information indicated that a bare trust described in Technical News No. 7 is in existence. Accordingly, if legal ownership is registered in respect of Individual A, it appears that there would be no change in beneficial ownership.
XXXXXXXXXX 990695
M. Eisner
Attention: XXXXXXXXXX
April 6, 1999
Dear Sir:
Re: XXXXXXXXXX (“Individual A”)
This is in reply to your letter of February 5, 1999, which was addressed to the XXXXXXXXXX Taxation Centre, in which you requested an advance income tax ruling with respect to Individual A. Your letter has been referred to us for reply.
In the circumstances of your situation, Individual A purchased a property (the “Property”) in XXXXXXXXXX in XXXXXXXXXX on which his residence was located. Ever since that time, Individual A and his wife have lived in the residence. On XXXXXXXXXX, Individual A, as a result of personal reasons, transferred the legal ownership of the Property to his son-in-law (“Individual B”). The trust agreement indicates that Individual B would hold the Property “In Trust” for Individual A until Individual A advises Individual B on how to deal with the Property. Individual B did not pay Individual A any consideration with respect to the Property and has never resided at the Property. Individual A has always paid for the maintenance of the residence including property taxes, insurance, repairs, and hydro.
Individual A now wishes to have the Property legally registered back to his name. You have asked us whether Individual B will be considered to have disposed of the residence when that occurs with the result that he may be considered to have realized a capital gain for the purposes of the Income Tax Act (the “Act”).
Advance income tax rulings are only provided by the Department in respect of proposed transactions. As discussed with you on March 31, 1999 (Eisner/XXXXXXXXXX), we are unable to provide you with an advance income tax ruling because the subject matter of your request, rather than relating to an arrangement that is to be put in place, relates to an “In Trust” arrangement that has existed since XXXXXXXXXX. However, we are prepared to provide you with the following general comments.
Where property is held by a bare trust, we will ignore the trust for income tax purposes and will consider the transferor/settlor to be the owner of the property for all purposes of the Act. We generally consider a trust under common law to be a bare trust when the trustee has no significant powers or responsibilities and can take no action without instructions from the settlor, the trustee’s only function is to hold legal title to the property, and the settlor is the sole beneficiary and can cause the property to revert to him or her at any time.
The determination of whether a bare trust is in existence in any particular situation involves a question of fact. However, on the basis of the information you have provided us, it would appear that a bare trust was in existence. In such circumstances, Individual A would have always been the owner of the Property with the result that there would be no disposition by Individual B if the legal ownership of the property were to be transferred back to Individual A.
We trust that our comments are of assistance, but caution you that they do not constitute an advance income tax ruling, and accordingly, are not binding on the Department with respect to any particular transaction.
The deposit which accompanied your request will be returned to you under separate cover.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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