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 a distribution from a trust to another trust as beneficiary would be viewed as a gift for purposes of paragraph 122(2)(d)?
Position: No.
Reasons: The distribution would not be a gift where the distribution is made to a beneficiary pursuant to the beneficiary's interest in the trust.
XXXXXXXXXX 2003-003221
J. D. Brooks
November 28, 2003
Dear XXXXXXXXXX:
This is in reply to your enquiry of July 21, 2003 in which you requested our views on the application of subsection 122(2) of the Income Tax Act in a hypothetical situation in which an inter vivos trust established before June 18, 1971 distributes property to another inter vivos trust established before June 18, 1971. The distribution is pursuant to the terms of the agreement governing the first trust and is made in satisfaction of the second trust's capital interest in the first trust, which was acquired before June 18, 1971. Your concern is whether the distribution would be viewed as a gift received by the second trust as described in paragraph 122(2)(d) of the Act, which would have the effect of causing the second trust to not qualify for the exemption from the rate of tax stipulated in subsection 122(1).
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.
It is our view that a distribution of property by a trust to a beneficiary pursuant to the rights of the beneficiary in the trust would not be considered to be a gift for purposes of paragraph 122(2)(d) of the Act. Thus where the terms of an inter vivos trust established before June 18, 1971 specify that property of the trust is to be distributed to a certain beneficiary and that beneficiary is another inter vivos trust established before June 18, 1971 and the distribution is made pursuant to those terms, the distribution would not be a gift for purposes of paragraph 122(2)(d) of the Act.
The foregoing comment represents our general view with respect to the subject matter. As indicated in paragraph 22 of the Circular, the above comment does not constitute an income tax ruling.
Yours truly,
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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