This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: Whether the rollover provided in subsection 70(6) is available if the terms of the will that creates a testamentary trust for the benefit of the deceased taxpayer’s spouse or common-law partner allow the trustee of the testamentary trust to make donations in favor of charities before the death of the taxpayer's spouse or common-law partner?
Position: No, the trust will generally not qualify for a rollover under subsection 70(6).
Reasons: As a result of the possibility for the trustee to make donations to charities out of the trust’s capital or income, persons other than the taxpayer's spouse or common-law partner may obtain the use of the trust income or capital before the death of the taxpayer's spouse or common-law partner.
FEDERAL TAX ROUNDTABLE, OCTOBER 7, 2022
APFF CONFERENCE 2022
6. Living gift through a spousal trust
Ms. X's late husband, Mr. X, created a testamentary spousal trust. Prior to Mr. X's death, Mr. X and Ms. X regularly made substantial charitable donations, usually in the range of $70,000 to $90,000 annually. Those donations always formed part of the couple's cost of living. Mr. X and Ms. X wanted Ms. X to be able to continue to make donations following her husband's death through trust assets that will have a market value of more than $5 million.
We are aware of Technical Interpretation 2010-0370511C6 (footnote 1) in which the CRA confirmed that gifts made from the capital of the trust did not affect the characterization of the trust as a spousal trust, if the gifts were only possible, and were made, after the death of the surviving spouse.
Question to the CRA
Considering that charitable donations have always been part of Ms. X's cost of living and assuming that such donations are possible, would donations during the surviving spouse's lifetime affect the characterization of a spousal trust within the meaning of subsection 70(6) of the Income Tax Act (footnote 2)?
Subsection 70(6) applies, inter alia, in respect of a capital property described in subsection 70(5) that is, as a consequence of a taxpayer's death, transferred or distributed to a trust created by the taxpayer's will and that meets the conditions set out in paragraph 70(6)(b). In particular, under subparagraph 70(6)(b)(ii), no person except the spouse or common-law partner may, before the spouse’s or common-law partner’s death, receive or otherwise obtain the use of any of the income or capital of the trust.
Whether the condition in subparagraph 70(6)(b)(ii) is satisfied is a question of fact and law that can only be resolved after a full review of all the relevant facts and documents surrounding a particular situation.
Where the will establishing the testamentary spousal trust provides for the trustee of the trust to make gifts out of the income or capital of the trust to a charity, i.e., to a person other than the spouse or common-law partner, prior to his or her death, we are of the view that the condition in subparagraph 70(6)(b)(ii) is not satisfied.
The mere possibility that a person other than the spouse or common-law partner may, before his or her death, receive or otherwise obtain the use of any of the income or capital of the trust is sufficient to disqualify the trust for purposes of the rollover under subsection 70(6).
October 7, 2022
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 CANADA REVENUE AGENCY, Technical Interpretation 2010-0370511C6, October 8, 2010.
2 R.S.C. (1985), c. 1 (5th Supp.) (”I.T.A.”).
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2022
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2022