30 March 2006 External T.I. 2006-0174831E5 - transfer to and from a bare trust

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: 1. Can paragraph (b)(v) of the definition of "disposition" apply if the bare trust has only one beneficiary?

2. Does a disposition arise when a bare trustee distributes the property back to the settlor\beneficiary who contributed the property to the trust?

Position: 1.Yes 2. No

Reasons: 1. Subsection 33(2) of the Interpretation Act, R.S.C. 1985 (5th supp.) c. 27, provides that words in the singular include the plural and words in the plural include the singular. Thus, when a bare trust only has one beneficiary, the reference to "all the beneficiaries" in 104(1) and (b)(v) of the definition of "disposition" would refer to the sole beneficiary.

2. Although paragraph (b)(v) of the definition of "disposition" would apply, paragraph (e) of the definition of "disposition" would presumably also apply in that the transfer back to the settlor would be a transfer which did not involve a change of beneficial ownership. Since paragraph (e) of the definition of "disposition" in 248(1) is not one of the provisions for which a bare trust is recognized as a trust under 104(1), then the exceptions in (e) of the definition of "disposition" in 248(1) under which the disposition would be recognized would not apply.

XXXXXXXXXX 						2006-017483
							Annemarie Humenuk
Attention:  XXXXXXXXXX 

March 30, 2006

Dear XXXXXXXXXX:

Re: Application of subparagraph (b)(v) of the Definition of "Disposition" to a Bare Trust

This is in reply to your letter of March 3, 2006 concerning the definition of "disposition" in subsection 248(1) of the Act as it relates to property transferred to a bare trust established for the benefit of a single beneficiary.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

In general terms, subsection 104(1) of the Act provides that, in situations where the trustee can reasonably be considered to act as agent for all the beneficiaries in respect of all dealings with the trust property and the trust is not a trust described in any of paragraphs (a) to (e.1) of the definition "trust" in subsection 108(1), the arrangement is not considered to be a trust for all but a few purposes of the Act. Subparagraph (b)(v) of the definition of "disposition" in subsection 248(1) provides that for the purposes of the Act, a disposition includes an event by which a trustee of such a trust ceases to act as agent for any of the beneficiaries in respect of all dealings with the trust property. Since subparagraph (b)(v) of the definition of "disposition" in subsection 248(1) describes the type of trust to which the provision applies by reference to "all the beneficiaries of the trust", you ask whether the provision would apply if there were only one beneficiary of the trust. In particular, you would like to know whether subparagraph (b)(v) of the definition of "disposition" in subsection 248(1) requires the recognition of a disposition for the purposes of the Act when the trustee of a bare trust distributes the trust property to the sole beneficiary and thus ceases to act as agent for that beneficiary. For the purpose of this letter, a bare trust is understood to be a trust under which the which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property but does not include a trust described in any of paragraphs (a) to (e.1) of the definition "trust" in subsection 108(1).

Subsection 33(2) of the Interpretation Act, R.S.C. 1985 (5th supp.) c. 27, provides that words in the singular include the plural and words in the plural include the singular. Thus for the purpose of both subsection 104(1) and subparagraph (b)(v) of the definition of "disposition" in subsection 248(1), the reference to an arrangement under which the trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property can include an arrangement under which there is only one beneficiary of the trust.

While a "disposition" as defined in subsection 248(1) includes the transactions and events described in paragraphs (a) to (d) of that definition, it does not include the transactions and events described in paragraphs (e) to (m) of that definition. Paragraph (e), in particular, provides that a disposition, including a transaction or event described in paragraph (a) to (d) of that definition, does not include certain transfers that involve no change in beneficial ownership. As stated in your letter, paragraph (e) of the definition of "disposition" is not one of the provisions for which a bare trust is considered to be a trust. Thus, the transfer of property by a person to a bare trust under which that person is the sole beneficiary or the transfer of that property back to that person from such a trust would not result in a disposition for the purposes of the Act.

If, however, the nature of the trustee's role with respect to the trust property held on behalf of a beneficiary changes such that subparagraph (b)(v) applies but the trustee retains the trust property (i.e., the trustee takes on the active duties of being a trustee), paragraph (e) would not apply as no actual transfer has taken place. In such a situation involving a beneficiary who is also the settlor of the trust, the beneficiary\settlor would recognize a disposition of the property to the trust at that time, even though the actual transfer to the trustee occurred at an earlier time.

Note that while a bare trust can be established for someone other than the settlor, the transfer of property from the settlor to such a bare trust would result in a change of beneficial ownership and thus the settlor would be required to recognize the gain or loss arising from the disposition of property at that time.

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
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch