8 January 2003 External T.I. 2002-0133035 - Foreign Reporting of the Settlor

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 the settlor of a non-resident trust can answer no on the T1 return when asked whether he owns foreign property.

Position: Generally yes, but special circumstances have to be considered. However, form T1141 or form T1142 might have to be filed according to section 233.2 or 233.6 of the Act.

Reasons: A settlor does not own the property that he transferred to the non-resident trust. In this situation the settlor does not have an interest in the trust that he created. Accordingly, s. 233.3 of the Act is not applicable.

XXXXXXXXXX 	2002-013303
		Yves Moreno
Attention:  XXXXXXXXXX 

January 8, 2003

Dear XXXXXXXXXX:

Re: Foreign Reporting

This is in reply to your letter of April 5, 2002, wherein you requested clarification of the rules related to the foreign reporting requirements for foreign property contained in section 233.3 of the Income Tax Act (the "Act"). While a verbal response was provided to you in April, you have asked that we also provide a written response.

In your letter, you described a situation where a taxpayer, while he was a non-resident of Canada, gifted property to a non-resident trust. The taxpayer, who is now a resident of Canada, was the settlor of the trust but is not a beneficiary or a trustee of the trust. Also, it is our understanding that the trust is a non-resident discretionary trust that will be deemed to be resident in Canada pursuant to subsection 94(1) of the Act once the conditions set out in that subsection are met. You have asked whether the taxpayer, when filing his income tax return for the 2001 taxation year, will have to indicate on page 1 of the T1 Return that he owns foreign property worth more than $100,000.

Your request appears to relate to an actual situation. Confirmation of the income tax consequences of transactions or events involving specific taxpayers will only be provided in response to a request for an advance income tax ruling submitted in accordance with the guidelines set out in Information Circular 70-6R5 Advance Income Tax Rulings dated May 17, 2002. However, if the situation relates to a completed transaction, it is the responsibility of the local Tax Services Office. We can, however, provide the following general comments.

Subsection 233.3(3) of the Act provides that Canadian residents who hold specified foreign property with a total cost amount of more than $100,000 at any time in the year have to file Form T1135, Foreign Income Verification Statement. Subsection 233.3(1) of the Act defines "specified foreign property" to include among other things property that is:

a) funds or intangible property which are situated, deposited or held outside Canada;

b) tangible property situated outside Canada; and

c) an interest in a non-resident trust or a trust that, but for section 94, would be a non-resident trust for the purpose of this section.

Once the trust was validly constituted, the settlor no longer owns the property that was transferred to the trustees. Also, in your particular case, you have advised that the settlor does not have an interest in the trust that he created. Therefore, the taxpayer would not own the type of property described in paragraphs (a), (b) and (c) of the definition of "specified foreign property" provided in subsection 233.3(1) of the Act.

These comments are of a general nature and specific circumstances might require further consideration. For instance, should the settlor retain powers with respect to the trust property or be entitled to take the property in default of appointment the trust instruments would have to be examined to determine whether the settlor is required to make a disclosure under section 233.3 of the Act.

In addition to the reporting requirements in section 233.3 of the Act, a person who transfers or lends property to a trust may be required to file a duly completed and signed Form T1141, Information Return in Respect of Transfers or Loans to a Non-resident Trust, pursuant to section 233.2 of the Act. Also, a person who receives a distribution of property from, or who is indebted to, a non-resident trust may be required to file Form T1142, Information Return in Respect of Distributions from and Indebtedness to a Non-resident Trust, pursuant to section 233.6 of the Act.

We trust our comments will be of assistance.

T. Murphy
for Director
International and Trusts Division
Income Tax Rulings Directorate
.../cont'd