20 June 2002 External T.I. 1999-0013055 - 75(2)(b) where settlor is sole trustee

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Does 75(2) apply when the settlor or contributor is the sole trustee of an irrevocable non-discretionary trust with no power to add beneficiaries and the settlor or contributor is not a beneficiary of the trust?

Position: Yes

Reasons:     As the sole trustee of the trust, the trust property cannot be disposed of without the settlor's consent or direction.  As a result, the condition in 75(2)(b) is applicable to the property contributed by the settlor or contributor.  If the conditions which cause 75(2) to apply cease to apply at some future time, such as when the settlor resigns as trustee, 75(2) will cease to apply; however, 107(4.1) will still apply to any distributions to beneficiaries.
XXXXXXXXXX 	1999-001305
		Annemarie Humenuk
Attention:  XXXXXXXXXX 

June 20, 2002

Dear XXXXXXXXXX:

Re: Application of Paragraph 75(2)(b) to the Sole Trustee of a Trust

This is in reply to your letter of October 7, 1999, concerning the application of paragraph 75(2)(b) where the sole trustee of a trust has contributed property to the trust. We apologize for the delay in our response which was necessitated by a thorough review of the issue.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended.

You ask whether paragraph 75(2)(b) would apply to the income earned by a trust on property contributed by a person other than the settlor (the "contributor") where that person was the sole trustee of the trust. For the purpose of your question, it is assumed that paragraph 75(2)(a) does not apply as the contributor has no power to appoint additional beneficiaries or otherwise determine to whom the property will pass, is not a beneficiary of the trust and there are no circumstances under which any of the trust's property could revert to the contributor. You ask if our opinion would be any different if the contributor was one of two or more trustees.

It is a question of fact as to whether property is held by a trust under any of the conditions described in paragraph 75(2). While it is generally the settlor who transfers property to a trust, as explained in paragraph 11 of IT-369R, Attribution of Trust Income to Settlor, subsection 75(2) can apply to attribute income to anyone who contributes property to a trust under one or more of the circumstances described in subsection 75(2). When the contributor is the sole trustee of the trust, none of the trust's property can be disposed of without that person's consent or direction. As a result of the contributor's direct control over the property transferred to the trust, it is our view that subsection 75(2) would apply.

However, where the contributor is one of two or more co-trustees acting in a fiduciary capacity in administering the trust property and there are no specific terms outlining how the trust property is to be dealt with, but rather the property is subject to standard terms ordinarily found in trust indentures, we accept that paragraph 75(2)(b) will generally not be considered applicable. It could still apply however where the terms and conditions of trust expressly require the contributor's consent to any decision made by the trustees as a whole. This would include the situation where decisions are made by a majority of trustees provided that the trustee-contributor is one of that majority but would not include the situation where the terms of the trust require the decisions of the trustees to be unanimous. Thus a determination of whether this condition is met in respect of any particular property can only be made on a case-by-case basis following a review of all the facts and circumstances surrounding a particular situation.

It should also be noted that subsection 75(2) is a deeming provision applicable when certain conditions are present. If these conditions cease to exist at any time, for example when the contributor resigns his or her position as sole trustee, the attribution rules under subsection 75(2) will cease to apply at that time. However, subsection 107(4.1) will apply to any subsequent distribution of that property or any substituted property to a person other than the person who transferred the property to the trust.

This opinion is provided in accordance with the comments in paragraph 22 of Information Circular 70-6R5.

Yours truly,

T. Murphy
Manager
Trusts Section
International & Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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