2013 Ruling 2013-0492831R3 - Trust to trust transfer of property

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: Whether the transfer of trust property to a new trust will result in a disposition of property by the trust.

Position: No disposition of trust property on trust to trust transfer by virtue of paragraph (f) of the definition of "disposition" in subsection 248(1) of the Act.

Reasons: The new trust will be deemed to be the same trust and a continuation of the transferor trust pursuant to subsection 248(25.1). Subsection 104(5.8) will apply and result in the application of subsection 104(4) to the new trust on the same date that subsection 104(4) would have applied to the transferor trust.

XXXXXXXXXX
2013-049283

XXXXXXXXXX, 2013

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter dated XXXXXXXXXX requesting an advance income tax ruling on behalf of the above mentioned taxpayer. We also acknowledge our telephone conversations (XXXXXXXXXX) and emails of XXXXXXXXXX regarding your request.

We understand that to the best of your knowledge, and that of the above taxpayer, none of the following issues involved in the ruling request is:

(i) in an earlier tax return of the taxpayer or a related person,

(ii) being considered by a tax services office or a tax centre in connection with a tax return already filed by the taxpayer or a related person,

(iii) under objection by the taxpayer or a related person,

(iv) before the courts, or

(v) the subject of a ruling previously issued by the Directorate to the taxpayer or a related person.

This document is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions except as expressly referred to herein, and any references thereto are otherwise provided solely for the convenience of the reader.

Unless otherwise indicated, all statute references are to the Income Tax Act (Canada) (R.S.C. 1985, 5th Supplement, c.1, as amended, the "Act").

DEFINITIONS

In this letter, the following terms have the meanings specified:

a) "Beneficiaries" mean the Income Beneficiaries and the Capital Beneficiaries;

b) "capital" means capital of the Trust Property;

c) "Capital Beneficiaries" is defined in the trust agreement as Father and the Children, all of whom are currently older than XXXXXXXXXX years of age;

d) "Children" means,

(i) XXXXXXXXXX, born XXXXXXXXXX;

(ii) XXXXXXXXXX, born XXXXXXXXXX;

(iii) XXXXXXXXXX, born XXXXXXXXXX; and

(iv) XXXXXXXXXX, born XXXXXXXXXX;

e) "CRA" means the Canada Revenue Agency;

f) "Division Date" has the meaning described in subparagraph 5 a below;

g) "Father" means XXXXXXXXXX;

h) "Income Beneficiaries" is defined in the trust agreement as Father and the Children, all of whom are currently older than XXXXXXXXXX years of age;

i) "inter vivos trust" has the meaning assigned by subsection 108(1);

j) "New Trust" means the trust described in paragraphs 6 and 7 below;

k) "Opco" means XXXXXXXXXX, a private corporation incorporated under the laws of the Province of XXXXXXXXXX; and

l) "Trust" means the XXXXXXXXXX as described in paragraph 1 below.

FACTS

1. The Trust is an inter vivos trust settled by XXXXXXXXXX ("Settlor") with a $XXXXXXXXXX, pursuant to a trust agreement signed on XXXXXXXXXX ("Original Trust Agreement"). The Trust's mailing address is XXXXXXXXXX, Canada. The Trust is resident in Canada. The tax account number of the Trust is XXXXXXXXXX and its tax returns are filed at the CRA's XXXXXXXXXX tax centre.

2. The Trust's assets include the settlement property (a $XXXXXXXXXX), other cash, and XXXXXXXXXX common shares of Opco (collectively referred to herein as "Trust Property"). The common shares of Opco are held as capital property.

3. The current trustees of the Trust are Father, his spouse, and XXXXXXXXXX, (the "Trustees").

4. Each of the Beneficiaries is a resident of Canada.

5. The Original Trust Agreement provides, inter alia:

a. "Division Date" means the first to occur of,

(i) the date on which the youngest of the Beneficiaries reaches XXXXXXXXXX years of age,

(ii) the date of death of the last survivor of Father and his spouse,

(iii) the date which is the day before the day which is XXXXXXXXXX years after the date of the Original Trust Agreement,

(iv) any date determined by the Trustees which is prior to the dates in (i) and (ii) above and after the date the youngest of the Beneficiaries reaches XXXXXXXXXX years of age.

b. Subparagraph XXXXXXXXXX of the Original Trust Agreement provides that on the Division Date the Trustees shall pay or transfer the Trust Property to or for the benefit of the Income Beneficiaries and the Capital Beneficiaries, as follows:

(i) The capital shall, subject to (ii) and (iii) below, be paid to or for the benefit of any one or more of the Capital Beneficiaries then alive in such proportion and in such manner as determined by the Trustees. In so doing, the Trustees may exclude any one or more of the Capital Beneficiaries;

(ii) The property settled by the Settlor on the Trustees, or property substituted therefore, shall be paid to the Income Beneficiaries then alive in equal proportions;

(iii) If all of the Beneficiaries are deceased, the capital shall be paid to or for the benefit of those persons entitled to share upon the death of Father and his spouse, and the Children, as set out in the last will and testament of the last to die of Father and his spouse, or, failing a last will and testament being left by them, in accordance with the XXXXXXXXXX.

c. Subparagraph XXXXXXXXXX of the Original Trust Agreement provides that without limiting any powers, discretions and immunities otherwise available to the Trustees, the Trustees may:

Without infringing the rule against perpetuities, to transfer the Trust Property, if it has not vested in possession in one or more of the Beneficiaries, to any other trust to be held by the trustees of that trust.

That other trust must not infringe the rule against perpetuities and all of the Beneficiaries must be beneficiaries of it. In addition, the respective interests of the beneficiaries in the transferred Trust Property must be substantially the same as the interests of the Beneficiaries in the Trust Property under this Agreement.

PROPOSED TRANSACTIONS

6. The Settlor will establish a new trust ("New Trust") which will be resident in Canada. The Trust will transfer the Trust Property to New Trust prior to the date on which the youngest Beneficiary of the Trust turns XXXXXXXXXX years of age.

7. The trust agreement which will govern the New Trust ("New Trust Agreement") will be identical in every respect to the Original Trust Agreement except for:

a. Subparagraph (i) in the definition of the "Division Date" will be deleted, eliminating the obligation to distribute the Trust Property on the youngest Beneficiary's XXXXXXXXXX birthday.

b. Subparagraphs (ii) and (iv) of the definition of "Division Date" will become subparagraphs (i) and (iii) in the New Trust Agreement.

c. Subparagraph (ii) in the definition of the "Division Date" in the New Trust Agreement will state "the date which is the day before the day which is XXXXXXXXXX years after the date of the Original Trust Agreement, namely, XXXXXXXXXX." As a result, the Division Date under subparagraph (ii) of the New Trust Agreement will effectively be the same as it would have been under subparagraph (iii) of the definition of Division Date in the Original Trust Agreement.

d. The New Trust Agreement may include minor amendments in formatting and wording which are not considered to be relevant for purposes of this ruling (for example, "Income Beneficiaries" will be amended to reflect the beneficiaries' current city/town/province of residence).

8. The Beneficiaries and their respective interests will remain the same under the New Trust Agreement as they were under the Original Trust Agreement.

9. The Trustees will transfer the assets of the Trust to the New Trust utilizing the powers in subparagraph XXXXXXXXXX of the Original Trust Agreement. This will extend the Division Date until the earlier of XXXXXXXXXX, the later death of Father and his spouse, or such earlier date as determined by the Trustees.

10. Prior to the transfer of the Trust Property, New Trust's only asset will be the $XXXXXXXXXX used to settle New Trust.

11. Subsequent to the transfer of Trust Property to New Trust, the Trust will cease to exist.

12. There are no significant transactions planned before or subsequent to the transfer of the Trust Property from the Trust to New Trust.

13. New Trust will not file a written election with the Minister on or before the filing-due date for its tax year in which the transfer is made (or on such later date acceptable to the Minister) that paragraph (f) of the definition of "disposition" in subsection 248(1) of the Act not apply.

PURPOSE OF PROPOSED TRANSACTIONS

14. The Trust Agreement requires the Trustees to distribute the assets of the Trust to the Beneficiaries on the "Division Date." The Trustees do not consider that the timing is appropriate for the distribution of all of the Trust Property on the youngest Beneficiary's XXXXXXXXXX birthday (XXXXXXXXXX).

15. An extension of the Division Date will provide the Trustees with the additional time to prepare for the transition of the Trust Property to the next generation and will ensure the shares of Opco are distributed to the appropriate members of the next generation.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, proposed transactions and the purpose thereof, we rule as follows:

A. The transfer of the Trust Property to New Trust will not result in a disposition of property by the Trust by virtue of paragraph (f) of the definition of "disposition" in subsection 248(1) of the Act.

B. New Trust will be deemed to be the same trust as and a continuation of the Trust pursuant to subsection 248(25.1) of the Act.

C. Subsection 104(5.8) of the Act will apply and result in the application of subsection 104(4) of the Act to New Trust on the same date that subsection 104(4) would have applied to the Trust.

Nothing in this advance income tax ruling should be construed as implying that we are ruling on any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.

The above advance income tax rulings, which are based on the Act and Income Tax Regulations to the Act in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002, and are binding on the CRA provided that the proposed transactions are completed prior to the date on which the youngest Beneficiary of the Trust turns XXXXXXXXXX years of age.

Yours truly,

XXXXXXXXXX
For Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch