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: Whether successive trusts established under the terms of an "alter ego trust" or "joint spousal or common-law partner trust" qualify as "testamentary trusts" within the meaning of subsection 108(1) of the Income Tax Act.
Position: No.
Reasons: They are not created by the deceased and property will be contributed to these trusts other than by the deceased on or after the deceased
XXXXXXXXXX 2000-007928
Éric Allard-Pouliot
November 2, 2001
Dear XXXXXXXXXX:
Re: Technical Interpretation Request : Status of Successive Trusts
This is in reply to your letter of October 17, 2000, in which you requested our opinion regarding the above-noted subject. More particularly, you requested our opinion as to whether a trust to be created upon the death of the settlor of an "alter ego trust" or upon the death of both the settlor and his or her spouse or common-law partner in the case of a "joint spousal or common-law partner trust", as those terms are defined in subsection 248(1), would qualify as a "testamentary trust" within the meaning of subsection 108(1) of the Income Tax Act (the "Act"). Although the remainder of this letter refers only to alter ego trusts, the analysis and result apply equally to a joint spousal or common-law partner trust.
The term "testamentary trust" is defined in subsection 108(1) of the Act. A testamentary trust means a trust or estate that arises on or after the death of an individual, subject to the exclusions set out in paragraphs (a) to (c) of that definition. Paragraph (a) excludes a trust from the definition of testamentary trust if it is created by anyone other than the deceased. Paragraph (b), applicable to trusts created after November 12, 1981, excludes a trust from the definition of testamentary trust if any property is contributed to it otherwise than by an individual on or after the individual's death and as a consequence thereof.
Accordingly, a trust which is created by the trustees of an inter vivos trust pursuant to the terms of that trust would not be a testamentary trust for the purposes of the Act by reason of the exclusion in paragraph (a) of the definition of testamentary trust. Similarly, a trust which receives a contribution from an inter vivos trust would not be a testamentary trust for the purposes of the Act by reason of the exclusion in paragraph (b) of that definition.
Since it is our understanding that a person cannot transfer his or her property on or after his or her death otherwise than by will or other testamentary instrument, the transfer of property from an alter ego trust to a trust created after the death of the settlor of the alter ego trust is not a transfer of property by the settlor of that alter ego trust. Furthermore, in the case of property which has been transferred to an alter ego trust prior to the death of the settlor, the property does not belong to the settlor at the time of the settlor's death and thus, the property cannot be considered to be a contribution by the settlor as a consequence of the settlor's death to a trust that is created subsequent to the settlor's death.
Therefore, it is our view that trusts created upon the death of the settlor of an inter vivos trust pursuant to the provisions contained in the inter vivos trust indenture are inter vivos trusts and do not qualify as testamentary trusts within the meaning of subsection 108(1) of the Act.
The above comments are an expression of opinion only and are not binding on the Canada Customs and Revenue Agency, as explained in paragraph 22 of Information Circular 70-6R4. We trust that the foregoing will be of assistance to you.
Yours truly,
Alain Godin, Manager
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content