CRA expands its positions on spouse trusts in a new Folio
6 February 2022 - 10:46pm
CRA has published a Folio that expands on various of the positions that it took in IT-305R4. Additional points made include:
- A mooted spouse trust is disqualified by the existence of a power to encroach on the capital or income for the benefit of persons other than the spouse or common-law partner, prior to their death – or by a discretion of the trustee to allocate the trust’s income or capital among members of the deceased taxpayer’s family during the life of such spouse/partner.
- Only the spouse/partner can have discretion respecting trust income distribution. In order for the spouse/partner to have a legal right to enforce payment of the income of the trust (as required under s. 70(6)(b)(i)), any discretion respecting distribution of trust income must be solely in that individual’s hands. However, retention of trust income at that individual’s direction does not disqualify the trust (although such income would still be included in the individual’s income under s. 104(24), absent a valid s. 104(13.1) election).
- The terms of the trust cannot permit the trustee to restrict the payment to the spouse or common-law partner of any portion of the trust’s income, nor may the individual’s income entitlement be limited to a certain percentage of the value of the trust property.
- The doctrine of constructive receipt is applied, for example, a payment of trust income in accordance with the will to a person other than the spouse or common-law partner, on condition of its use solely for the individual’s benefit, would not disqualify the spouse trust.
- The competent authority procedure under Art. XXIX B of the Canada-U.S. Treaty can potentially be accessed for US residents, who devised or bequeathed taxable Canadian property to a spousal trust, in order to access the s. 70(6) rollover.
Neal Armstrong. Summaries of Folio S6-F4-C1, “Testamentary Spouse or Common-law Partner Trusts,” 3 February 2022 under s. 70(6)(b), s. 70(6.2), s. 248(1) - Common-Law Partner, s. 248(9.1), s. 108(3), s. 70(8)(c), s.70(7), s. 70(6.1), Treaties – Income Tax Conventions - Art. 29 B and s. 104(13.4)(b.1).