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: Will subsection 75(2) apply to property held pursuant to a trust indenture containing certain clauses?
Position: Question of fact.
Reasons: General comments provided.
October 27, 2008
Dear XXXXXXXXXX :
Re: Application of subsection 75(2)
This is in reply to your letter of September 8, 2008 requesting confirmation of our previously stated views in CRA documents 2003-0050671 and 2004-008692.
In your letter, you outline a number of clauses that may be found in a particular trust indenture. In light of our comments in the above noted documents, you ask whether either subparagraph 75(2)(a)(ii) or paragraph 75(2)(b) would apply in the scenario you describe. 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").
As explained in Information Circular 70-6R5, dated May 17, 2002, this Directorate does not comment on transactions involving specific taxpayers except by way of an advance income tax ruling in respect of proposed transactions nor can the tax consequences applicable to a trust be determined without a complete review of all the relevant facts, including the trust indenture or agreement which creates the trust. However, we can confirm that our position as set out in the above mentioned documents remains unchanged.
Recognizing that it is a question of fact as to whether the terms of a particular trust have been so conditioned as to enable the settlor to determine, after the creation of the trust, who will receive the trust property, the fact that the settlor is one of two or more trustees, acting in their fiduciary capacity to decide issues by majority will not normally, in and by itself, give rise to the application of subsection 75(2) of the Act. It could still apply however where the terms and conditions of a trust expressly require the contributor's consent to any decision made by the trustees as a whole. This would include the situation where decisions are made by a majority of trustees provided that the trustee-contributor is one of that majority but would not include the situation where the terms of the trust require the decisions of the trustees to be unanimous. Thus a determination of whether this condition is met in respect of any particular property can only be made on a case-by-case basis following a review of all the facts and circumstances surrounding a particular situation, including a review of the complete trust indenture.
On the other hand, where the settlor or other contributor is the sole trustee of the trust, none of the trust's property can be disposed of without the settlor's consent or direction. As a result of the settlor's direct control over the property transferred to the trust, it is our view that property transferred to the trust by the ettlor is held on the condition described in paragraph 75(2)(b) such that subsection 75(2) would apply even though the settlor's ability to control the disposition of the trust property is maintained by his or her position as a trustee. Likewise, where the terms of the trust allow the trust property to pass to persons determined by the trustee and the person who contributed the property is the sole trustee of the trust, subparagraph 75(2)(a)(ii) will apply.
This opinion is provided in accordance with the comments in paragraph 22 of Information Circular 70-6R5.
We trust our comments have clarified our position in this matter.
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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