Principal Issues: Where the terms of a trust permit the property of a trust to be loaned to a person other than the income beneficiary described in 73(1.01)(c) or 70(6), would such a loan taint the trust such that 73(1) or 70(6) did not apply to the property transferred to the trust?
Position: lending or investment of trust property to a non-spouse on "commercial" terms does not taint a spousal trust (or any other trust described in 104(4)(a)) but if the terms of the trust permit the lending of trust property to a person other than the spouse on terms more favourable than that which would otherwise be available to that person commercially, the trust would not be a spousal trust.
Reasons: Whether trust property is invested in a financial institution, used in a business, or loaned to a third party, someone other than the spouse "uses" the property, but for a fee. Such use does not result in encroachment of the trust's income or capital nor does the user obtain a benefit - thus, it is our view, as supported by the case of Peardon v MNR, 86 DTC 1045, that use of trust property acquired thru a commercially-based transaction (with regard to terms and conditions under which property was lent, invested or rented) does not taint a spousal trust.