14 November 2000 External T.I. 2000-0014595 - INCOME ATTRIBUTION

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: Is there any attribution of income and or capital gains when an "in-trust" account is established by a grandparent for a minor grandchild?

Position: If it can be proven that the grandchild is the beneficial owner of the property, the income will be attributed to the grandparents and the capital gains will be in the hands of the minor grandchild.

Reasons: Established Agency position IT-510. 9717475;9721325; 9830997

XXXXXXXXXX 	2000-001459
		Franklyn S. Gillman
November 14, 2000

Dear XXXXXXXXXX:

Re: Income Attribution Rules

We are replying to your letter of March 10, 2000, concerning the attribution of income rules for capital gains realized and the income earned from "in-trust" accounts established for your grandchildren.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Canada Customs and Revenue Agency.

Our Comments

It is a question of fact whether or not the "in-trust" accounts you created are actual trusts. This determination may be made only after all the facts and written agreements of the "in-trust" accounts have been reviewed. In that most "in-trust" accounts do not satisfy the requirements needed to be an actual trust, we shall presume the arrangements established for your grandchildren are not trusts in the legal sense but were established so that your grandchildren are the beneficial owners of the mutual funds that were placed in your name.

As discussed in Interpretation Bulletin IT-510, "Transfers and Loans of Property made after May 22, 1985 to a Related Minor", (copy enclosed) subsection 74.1(2) of the Income Tax Act (the "Act") generally provides that where an individual, in this case the grandparent, has transferred or loaned property (including money) to a related minor or to a trust in which a minor is beneficially interested at any time, any income or loss from the property or property substituted therefor is deemed to be income or loss of the grandparent for a taxation year. An exception is made for a minor who has attained the age of 18 years before the end of the year.

Income or losses derived from the investment or other use of the income from the transferred property is not attributed to the grandparents and thus, for income tax purposes, is income or loss of the grandchild. For example, interest on any previous interest allowed to accumulate is not attributed to the grandparents and is income of the grandchild.

Taxable capital gains or allowable capital losses arising from a subsequent disposition of the transferred property or property substituted therefor, do not attribute to the grandparent under subsection 74.1(2) of the Act.

We trust these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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