File #: 11750-5 (rw)
S. 123(1), 267, 269
Dear Mr. XXXXX
We are replying to your memorandum dated September 1, 1993 in which you request our comments with respect to the estate of XXXXX. We apologize for the delay in responding to your submission.
Statement of Facts
Based on the information provided in your memorandum and its attached documentation, we understand the facts to be as follows:
1. Immediately prior to his death XXXXX, XXXXX (the "Testator") owned several quarter-sections of farmland in XXXXX. All of these parcels of farmland were subject to a lease in favour of the Testator's grandson, XXXXX.
2. Under the terms of the Testator's will, XXXXX each were to receive a quarter-section of the farmland. XXXXX are sons of the Testator and XXXXX is the widow of a son of the Testator.
3. On XXXXX the parcels of farmland were transferred to and registered in the name of XXXXX as Executor of the estate.
4. Following the transfer of the lands to the Executor, XXXXX sold to XXXXX and his wife XXXXX the interest in the parcels of land each of them held as a beneficiary of the estate. Consequently, after the administration of the estate was completed, the Executor transferred the two parcels of land directly to XXXXX, who became the registered owners of the properties.
5. The quarter-section of land which was devised to XXXXX remains in the name of the Executor.
6. None of the Testator, XXXXX are registered for GST purposes. However, XXXXX are registered.
Issues and Analysis
1. Is GST exigible on the sale to XXXXX by XXXXX of their interests in the quarter-sections of land while the properties remained part of the estate?
There are two issues raised by this question. The first is whether an estate is a trust or, more accurately, whether a personal representative is a trustee. Secondly, if a personal representative is a trustee, do the interests in the estate lands held by XXXXX each constitute an "interest in a trust" for the purposes of the definition of "financial instrument"? If not, are they interests in real property?
The ETA contains relatively few provisions which are applicable to trusts. Consequently, whereas the Income Tax Act effectively equates an estate with a trust, the ETA does not expressly state that an estate is a trust, although this appears to be the intention. This apparent oversight may be significant because though a personal representative of an estate and a trustee are similar in that both are fiduciaries who manage and control property for the benefit of others, it remains unclear whether in law the two offices are equivalent. If the personal representative is not a trustee, the provisions of the ETA relating to trusts may not be applicable to estates and personal representatives. Having said this, however, the Department has previously taken the position that estates are trusts for GST purposes.
Assuming that an estate is a trust and that, as beneficiaries of the estate, XXXXX held beneficial interests in the properties in the estate, did they make taxable supplies of real property to XXXXX, or were the supplies exempt because the property transferred constituted interests in a trust?
The position that the Department has taken is that the interest of a trust beneficiary is an interest in a trust and, therefore, a financial instrument. Furthermore, the beneficial interest would not be considered real property. As a result, the transfers by XXXXX of their beneficial interests are exempt supplies.
2. Is GST exigible on the transfer of the two quarter-sections from the estate to XXXXX?
Assuming that the estate is a trust and that XXXXX have become beneficiaries of the estate, the transfer to them of the legal titles to the properties by the Executor would be distributions from a trust to which section 269 would be applicable. In other words, the distributions are deemed to be supplies of the property for consideration equal to the amount determined under the Income Tax Act to be the proceeds of disposition.
Section 269 is essentially a valuation provision because although it deems the distributions to be supplies, it does not deem them to be taxable. Consequently, the tax status of these supplies would be determined using the normal rules. In this case, the distributions of the two quarter-sections to XXXXX are taxable since the properties were and, presumably, will continue to be, used in commercial activity. XXXXX being registered recipients, would be required to self-assess the GST in accordance with subsections 221(2) and 228(4), on the value of the consideration as determined by section 269.
3. What are the GST implications of the estate distributing to XXXXX the parcel of land that has been devised to her?
Section 269 would apply to the distribution of the property to XXXXX in the same manner as the distributions to XXXXX. However, we do not have sufficient facts to determine whether provisions such as section 12 of Part I of Schedule V may be applicable to make the supply an exempt one. If the supply is taxable, the estate would be required to charge GST since XXXXX is not registered.
We trust that you find our comments helpful. If you have any questions, please contact Robert Wong at (613) 952-9577.
Yours truly,
H.L. Jones
Director
General Applications Division
GAD #: 668 (reg)
| c.c.: |
J. Sitka
S. Moran
R. Wong |
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