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: General commentary on alter ego trusts.
Position: General comments provided.
Reasons: Draft legislation released in December, 1999, introduced the concept of an alter ego trust.
XXXXXXXXXX T. Murphy
990959/1999-001316
Attention: XXXXXXXXXX
May 15, 2000
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling Request
As discussed in our telephone conversation of May 1, 2000, your ruling request is withdrawn and we are providing general comments on the draft proposals dealing with alter ego trusts released on December 17, 1999, and capital property transferred to such a trust.
Essentially, an alter ego trust is one established after 1999 by a living individual who is at least 65 years of age where that individual is entitled to receive all the income of the trust arising before his or her death and no person except the individual may receive or otherwise obtain the use of any of the income or capital of the trust before the individual's death.
Draft subsection 73(1), in combination with draft subsections 73(1.01) and 73(1.02), generally provides that an individual may transfer property to his or her alter ego trust on a tax deferred (rollover) basis. Distributions of property of the alter ego trust to beneficiaries other than the individual during the individual's lifetime will be subject to revised subsection 107(4) such that, among other things, the alter ego trust will be deemed to have disposed of the property for proceeds of disposition equal to its fair market value at that time.
Draft amendments to subsection 104(4) provide that the alter ego trust will be deemed to have disposed of its properties described therein at the end of the day the individual dies for proceeds equal to their fair market value and will be deemed to have acquired them immediately thereafter at those same amounts. This will generally result in the alter ego trust reporting taxable capital gains and paying any taxes due thereon.
Where subsection 70(5) applies to deem the individual to have disposed of his or her capital interest in the alter ego trust immediately before death, draft paragraph (a.1) of the definition of cost amount in subsection 108(1) provides that the cost amount of the individual's capital interest is adjusted to take into account the deemed disposition of the alter ego trust's property under subsection 104(4). This amendment is to ensure that the deceased individual is not subject to tax on the deemed gain that will be subject to tax in the alter ego trust.
We trust our comments will be of assistance to you.
Yours truly,
R.S. Biscaro, CA
Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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