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: Does subsection 104(2) apply to a hypothetical scenario?
Reasons: The requirements of subsection 104(2) are met.
December 28, 2011
Dear XXXXXXXXXX :
Re: Subsection 104(2) of the Income Tax Act
This is in response to your letter of December 5, 2011 inquiring about the applicability of subsection 104(2) in certain circumstances. Unless otherwise stated, all statutory references in this letter are to the Income Tax Act, R.S.C. 1985, c. 1 (5th Suppl.) (the "Act"), as amended to the date hereof.
You provided a hypothetical scenario whereby a taxpayer dies leaving his property equally to 3 trusts, which are testamentary trusts pursuant to subsection 108(1), which provide that the testator's spouse is the only capital and income beneficiary during her lifetime and upon her death, the three children of the testator and the testator's spouse will, individually, be a beneficiary of one of each of the three trusts. You have asked whether the Minister of National Revenue would exercise her power under subsection 104(2) of the Act to treat more than one trust as a single trust in these circumstances.
Subsection 104(2) provides that where there is more than one trust and all of the property of the various trusts has been received from one person and the income from these trusts accrues to the same beneficiary or group or class of beneficiaries, such of the trustees as the Minister may designate shall be deemed to be in respect of all the trusts an individual whose property is the property of all the trusts and whose income is the income of all of the trusts.
The term "class of beneficiaries" is not defined in the Act for the purposes of subsection 104(2). As such, we use its common meaning. We would also take any definition into account that may exist in legislation governing trusts that would apply to the particular case. One definition of "class" contained in the Concise Oxford Dictionary states that it is a "group of persons or things having some characteristics in common". The Webster's Dictionary provides that it is "a group, set, or kind sharing common attributes".
It continues to be our view that "members of the same family" could be one class of beneficiaries. In order to make a determination the factors that may be taken into consideration include but are not limited to:
- whether there was a clear intention to create separate trusts, according to the provisions of the will or trust deed;
- whether the trusts have common beneficiaries, in particular the number of common beneficiaries and the nature of their respective interests in each of the trusts;
- whether the assets of each of the trusts are administered and accounted for separately; and/or
- the powers of the trustees.
In this regard, it is not necessary that each trust have the same beneficiaries; it is sufficient that the beneficiaries of each trust are of the same group or class of beneficiaries.
In relation to the facts presented by you, we note that at the time that the trusts are created, there is one common beneficiary of all of the trusts, namely the surviving spouse.
It should be noted that notwithstanding our comments above, the Minister has, in accordance with subsection 220(2.01) of the Act, authorized certain officers to exercise the powers and perform the Minister's duties under subsection 104(2). The officers are:
- Director, International Tax Services Office
- Director, Tax Services Office
- Assistant Director, Audit
- Assistant Director, Enforcement
- Manager, Audit
- Team Leader, Audit
- Team Leader, Enforcement
A full Administrative Consolidation of the delegations made under the Act and the Regulations can be found on our website at:
On the basis of the foregoing and the hypothetical fact situation presented, we believe that the Minister would exercise her discretion to designate multiple trusts as a single trust pursuant to subsection 104(2).
We trust that these comments will be of assistance.
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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