16 June 2014 STEP Roundtable, 2014-0523031C6 - 2014 STEP CRA Roundtable Question

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: If terms of the trust provide that the individual who transferred property to the trust is entitled to receive all of the income of the trust during his lifetime and the surviving spouse or common-law partner is only entitled to receive income thereafter, does the trust qualify as a "joint spousal or common-law partner trust" and can this arrangement meet the requirement that the two persons are entitled to receive the income of the trust "in combination with the other" as stated in 73(1.01)(c)(iii)?

Position: Such terms would not prevent a trust from qualifying as a joint spousal or common-law partner trust.

Reasons: Previous positions.

STEP CRA Roundtable – June 2014

Question 2 – A Joint Spousal or Common-Law Partner Trust

A "joint spousal or common-law partner trust" is defined in subparagraph 73(1.01)(c)(iii) to be a trust under which the individual or the individual's spouse or common-law partner, in combination with the other is entitled to receive all of the income of the trust that arises before the later of the death of the individual and the death of the spouse or common-law partner, and no other person may before the later of those deaths, receive or otherwise obtain the use of any of the income or capital of the trust.

Suppose that under the terms of the trust, the individual who transferred property to the trust is entitled to receive all of the income of the trust during his or her lifetime, and the surviving spouse or common-law partner is only entitled to receive income thereafter.

In these circumstances, does the trust qualify as a "joint spousal or common-law partner trust", and can this arrangement meet the requirement that the two persons are entitled to receive the income "in combination with the other"?

CRA Response

A "joint spousal or common-law partner trust" is defined in subsection 248(1) and means a trust to which paragraph 104(4)(a) would apply if that paragraph were read without reference to subparagraph 104(4)(a)(iii) and clause 104(4)(a)(iv)(A). This results in the following requirements:

1. The trust must be created after 1999 by a living taxpayer;
2. The taxpayer must be 65 years of age or older at the time the trust is created;
3. The taxpayer and his or her spouse or common-law partner must, in combination, be entitled to receive all of the income of the trust that arose before the later of their respective deaths; and
4. No other person may receive or obtain the use of any of the trust income or capital before the later death.

In our view, if the terms of the trust provide that the taxpayer who transferred property to the trust was entitled to receive all of the income of the trust during his or her lifetime and the surviving spouse or common-law partner was only entitled to receive the trust's income after the death of the taxpayer and no other person could, before the later of those deaths receive or otherwise obtain the use of any of the income or capital of the trust, this in and of itself, would not prevent the trust from qualifying as a "joint spousal or common-law partner trust".

Sebastian Bernards
2014-052303