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: Given that paragraph 104(4)(a) applies to trusts described in both 104(4)(a)(i) and 104(4)(a)(1.1) that meet the criteria in 104(4)(a)(iii) during the relevant period and 104(4)(a)(i) does not necessarily require the trust to have received the property on a rollover basis, will the first deemed disposition of a post-71 spousal or common law partner trust be the date on which the primary beneficiary dies (rather than 21 years after creation) regardless of whether the property was received on a rollover basis?
Position: Yes.
Reasons: In order for the first deemed disposition to occur on the death of the spousal beneficiary, a trust described in 104(4)(a)(i) must be a spousal trust from the moment of creation whereas a trust described in 104(4)(a)(i.1) need only be a spousal trust from the date on the which the property subject to the rollover was transferred to the trust. Provided that the trust is not a tainted spousal trust and that no reliance on 248(8), (9) or (9.1) is needed in order for the trust to qualify as a spousal trust, there is no requirement that the trust receive the property on a rollover basis.
XXXXXXXXXX 2006-018774
Annemarie Humenuk
Attention: XXXXXXXXXX
April 17, 2007
Dear XXXXXXXXXX:
Re: Spousal Trusts
This is in reply to your letter of May 16, 2006 concerning the first deemed realization day for a trust established by will primarily for the benefit of the surviving spouse where the proceeds of disposition on the deemed disposition arising on the death of the transferor were based on the fair market value of the property transferred to the trust. We apologize for the delay in our response.
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").
You note that the criteria set out in subsection 70(6) for a rollover of property to a spousal trust are not the same as the criteria used in subsection 104(4) to determine whether the first deemed realization day will occur 21 years after the creation of the trust or on the day on which the spouse who is the beneficiary of the trust dies. In particular, you note that a trust that meets the criteria in subparagraph 104(4)(a)(iii) need only meet the conditions in one of subparagraphs 104(4)(a)(i), (i.1), (ii) or (ii.1) in order to be subject to the deemed disposition rules in paragraph 104(4)(a) rather than the rules in paragraph 104(4)(b). As a result, you ask whether it is possible for paragraph 104(4)(a) to apply to establish the first deemed disposition date of a testamentary trust created after 1971 if the property received by the trust did not qualify for a rollover under either subsection 70(5.2) or 70(6).
The testamentary trusts described in subparagraphs 104(4)(a)(i) and (i.1) will qualify as post-1971 spousal or common-law partner trusts provided that the terms and conditions described in subparagraph 104(4)(a)(iii) are met throughout the relevant time period. Subparagraph 104(4)(a)(i) describes a trust that was created by the will of a taxpayer who died after 1971 and that was a trust that met the conditions described in subparagraph 104(4)(a)(iii) at the time it was created, whereas subparagraph 104(4)(a)(i.1) describes a trust that was created by the will of a taxpayer who died after 1971 to which property was transferred in circumstances to which one of paragraphs 70(5.2)(b), 70(5.2)(d) or 70(6)(d) applied and that met the conditions described in subparagraph 104(4)(a)(iii) immediately after the transfer.
Provided that the trust is a post-1971 spousal or common-law partner trust as defined subsection 248(1) from the relevant date, the first deemed disposition imposed by section 104 will arise on the date specified in paragraph 104(4)(a), whether or not subsection 70(6) had applied on the initial transfer of property to the trust.
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
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