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: With respect to a testamentary trust that otherwise qualifies as a spousal trust in subsection 70(6), will the ability of the trustee to lend funds (or to provide any other form of financial assistance) to a person other than the spouse taint the trust?
Position: Yes, unless commercial terms are complied with.
Reasons: The issue is whether the trustee is able to make funds available to anyone other than the spouse, whereas the definition of pre-1972 spousal trust considers whether anyone other than the spouse actually received or obtained the use of trust income or capital.
However, as stated in paragraph 16 of IT-305R4, the renting of real estate at market value or the lending of money on commercial terms will generally not be considered to result in someone receiving or otherwise obtaining the use of trust property.
XXXXXXXXXX J.D. Brooks
2003-001923
July 17, 2003
Dear XXXXXXXXXX:
This is in reply to your letter of May 14, 2003, in which you requested our views concerning the ability of a testamentary trust to qualify as a spousal trust where the will that created the trust authorizes the trustee to lend funds or provide any other financial assistance to any beneficiary with or without consideration.
Confirmation of the tax implications of transactions is given only in reply to an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5. While we are unable to comment on the particular situation described in your letter, the following general comments may be of assistance to you.
In order for a trust created for the benefit of a spouse to qualify for purposes of subsection 70(6) of the Income Tax Act, there is a requirement that no person except the spouse may be able, before the spouse's death, to receive or otherwise obtain the use of any of the income or capital of the trust. Paragraph 16 of Interpretation Bulletin IT-305R4 (Testamentary Spouse Trusts) addresses the issue of funds being made available to persons. It states that the lending of money on commercial terms (including market rates of interest, appropriate securities and a reasonable repayment schedule) does not generally mean that the borrower has received or has the use of money within the meaning of this requirement. However, where the trust agreement permits funds to be loaned (or any other form of assistance to be provided) to anyone other than the spouse for inadequate consideration, it is our view that such a trust would not qualify. Our opinion would not differ if the loan was not actually made, since the issue is whether the trustee has the power to lend as described. The present requirements are stricter than the requirements of a pre-1972 spousal trust since the latter is tainted only if a person other than the spouse actually receives or obtains the use of the trust's income or capital.
We trust that this information will be useful to you.
Yours truly,
Theresa Murphy
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
- 3 -
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, 2003
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, 2003
Email this Content