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: Whether 104(2) applies to the scenario provided to unify a group of trusts created for the benefit of family members.
Position: Question of fact.
Reasons: The applicability ss. 104(2) of the Act and the relevance of the various facts will mainly be determined in light of its object which is to "prevent a beneficiary, group or class of beneficiaries from being allowed to split income by using various trusts for the same beneficiary, group or class of beneficiaries".
XXXXXXXXXX 2002-016286
Yves Moreno
Attention: XXXXXXXXXX
November 19, 2002
Dear XXXXXXXXXX:
Re: Unification of trusts
This is in reply to your letter of September 9, 2002, in which you ask whether the Minister of National Revenue would use the discretionary power granted to him by ss. 104(2) of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act")) in the scenarios described hereafter.
Mr. X passes away. His executors sell all the assets that Mr. X owned and transfer the net cash proceeds to five trusts created for the benefit of his 2 adult children (A and B) and 4 grandchildren (a, b, c and d). The beneficiaries of the trust are various combinations of the children and grandchildren of Mr. X:
Trust Beneficiaries Amount
Trust 1 A, a, b. $300,000
Trust 2 A. $500,000
Trust 3 B, c, d. $300,000
Trust 4 B. $500,000
Trust 5 A, B. $200,000
You specify that the funds in each trust will be held in different investment assets and in different bank and brokerage accounts with separate bookkeeping.
The Minister may designate some of the trustees of those five trusts to be an individual who owns the property and income of the respective trusts for which they act if two conditions are met. First, substantially all the property of the trusts has been received from one person.
Second, the various trusts are conditioned so that their income accrues to the same beneficiary, group or class of beneficiaries.
The first condition is clearly met by the five trusts.
We refer you to the answer to question number 8 of the 1998 APFF Round Table for a statement of how the Canada Customs and Revenue Agency interprets the expression "class of beneficiaries". In that answer, it was stated that "we feel that the members of the same family could be one class of beneficiaries". The nature of the family link could be one factor that reinforces the concept of class (members of a single family unit like a parent and his children).
It was also stated in that round table that one of the criteria that would be examined in making that determination is whether the trusts have common beneficiaries. The number of common beneficiaries and the nature of their respective interests in each of the trusts are factors that might have some bearing in determining whether the income of those trusts accrues or ultimately accrues to the same group or class of beneficiaries.
Please note that the other factors listed in the above-mentioned round table are part of an open-ended list. The determination of whether the five trusts have been conditioned so that their income accrues to a group or class of beneficiaries is a question of fact. The applicability ss. 104(2) of the Act and the relevance of the various facts will mainly be determined in light of its object which is to "prevent a beneficiary, group or class of beneficiaries from being allowed to split income by using various trusts for the same beneficiary, group or class of beneficiaries" (citation from the round table answer). Please note that the power to determine whether several trusts will be considered one individual for the purposes of the Act lies with directors of tax services offices in accordance with paragraph 900(2)(b) of the Income Tax Regulations.
This opinion is provided in accordance with the comments in paragraph 22 of Information Circular 70-6R5.
We trust our comments will be of assistance.
T. Murphy
for Director
International and Trusts Division
Income Tax Rulings Directorate
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