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.
Principal Issues: Application of attribution rules on a transfer of property by a parent to his or her minor child.
Position: General comments on applicability of rules.
Reasons: Attribution rules apply where in fact and in law there has been a transfer by a parent to his or her minor child.
XXXXXXXXXX 2003-004907
April 21, 2004
Dear XXXXXXXXXX:
Re: Transfers "In Trust"
This is in reply to your letter of November 13, 2003, concerning the attribution rules in a situation where one parent owning property (the transferor) transfers legal title to that property to the other parent "in trust" for their minor child. The situation you envisage is one where the property would be beneficially owned by the child and recognized by law as belonging to the child; i.e., no trust would be determined to exist by law.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings. When the transaction related to the enquiry is completed, the enquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency.
If the property is in fact and in law that of the child, then the income and capital gains from the property would belong to the child and be liable to tax in the hands of the child, subject to the application of the attribution rules. Pursuant to subsection 74.1(2) of the Income Tax Act, the income from the property (or property substituted therefore) would be deemed to be that of the transferor parent until the year the child is 18 years of age.
We caution, however, that it would be a question of fact whether in any particular case there has been a transfer of property to a child (see for example document 9427115) or whether a trust relationship would be found to exist. If the transfer were incomplete or not legally effective, then the transferor parent would be liable to tax on all income and capital gains. Alternatively, if a trust were found to exist, the provisions of subsection 75(2) and section 120.4 of the Income Tax Act would also have to be considered.
Yours truly,
T. Murphy
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
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