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Principal Issues: Mr X's Will sets out that properties will be bequeathed to some inter vivos discretionary family trusts. Whether subsection 75(2) applies to the liquidator following the transfer of the estate properties to the family trusts of which he is a beneficiary?
Position: Probably not
Reasons: Interpretation of the Act and previous positions.
January 23, 2014
Subject: Subsection 75(2) of the Income Tax Act
This letter is in response to your August 8, 2013 e-mail regarding the above subject.
Unless otherwise indicated, all statutory references herein are references to the provisions of the Income Tax Act (the “Act").
You indicated that inter vivos discretionary family trusts reside in Canada ("inter vivos trusts"). Mr. X's will provides that, following his death, some of his property will be bequeathed to the inter vivos trusts. The liquidator [i.e., executor] of Mr. X's estate is one of the beneficiaries of the inter vivos trusts.
You wish to confirm that subsection 75(2) will not apply to the liquidator following the receipt by the inter vivos trusts of the property of Mr. X's succession following Mr. X's death. Specifically, you would like to confirm that the "person" referred to in subparagraph 75(2)(a)(i) is Mr. X and not the liquidator of his succession.
According to your interpretation of subsection 75(2), the "person" is Mr. X. As he is deceased, none of the conditions in paragraphs (a) and (b) can apply. In addition, by virtue of his mandate, the liquidator does not acquire ownership of the property of the estate and, therefore, cannot be the "person" for purposes of subsection 75(2).
This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings and Technical Interpretations.
The following terms are defined in subsection 248(1) as follows:
“trust” has the meaning assigned by subsection 104(1) and, unless the context otherwise requires, includes an estate;
“estate” has the meaning assigned by subsection 104(1) and includes, for civil law, a succession; (succession) (footnote 1)
As provided in Article 613 of the Civil Code of Québec ("CCQ"), the succession of a person begins at death. Taking into account that from that time, the succession’s property (the succession’s patrimony) consist of the deceased’s property, we are generally of the view that the deceased is the settlor for tax purposes of the trust (succession). In the submitted scenario, the property held by the trust (succession) had been contributed by Mr. X.
In Canada v. Sommerer (footnote 2), the Federal Court of Appeal cited a comment by Miller J. of the Tax Court of Canada:
"[O]nly a settlor, or a subsequent contributor who could be seen as a settlor, can be the "the person" for purposes of subsection 75(2) of the Act.” (paragraph 91)
In light of the foregoing, we agree with your interpretation that it would be reasonable to consider Mr. X to be the "person" for the purposes of subsection 75(2) in relation to the trust (succession). Since Mr. X is deceased, the provisions of subsection 75(2) would not apply to attribute to an heir or legatee any income or loss from the property or from property substituted for the property, and any taxable capital gain or allowable capital loss from the disposition of the property or of property substituted for the property held by the trust (succession) prior to the liquidation of the trust.
Finally, assuming that the mandate given to the liquidator in Mr. X's will is that described in Article 802 of the CCQ (footnote 3) and that, within the course of the liquidator’s mandate, additional powers were not granted to him respecting the disposition of properties or their distribution, it appears to us that subsection 75(2) could not apply to the latter if he is also a beneficiary of the inter vivos trust.
We hope that our comments are of assistance.
Louise J. Roy, CPA, CGA
for the Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 In the English version of the Act, the term “estate” is defined as follows: « estate » has the meaning assigned by subsection 104(1) and includes, for civil law, a succession; »
2 2012 FCA 207.
3 Article 802 of the CCQ states as follows: "The liquidator acts with respect to the property of the succession as an administrator of the property of others charged with simple administration".
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