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.
Dear Sirs:
This is in reply to your letter dated July 17, 1989 in which you requested a technical interpretation of subparagraph 54(c)(v) of the Income Tax Act ("Act") as it pertains to the following scenario.
We are to assume a trust would be established where "X" would be the settlor. There would be three trustees, of which X would be one. There would be a provision in the trust agreement that the decision of a majority of trustees will be binding. X will be the sole income beneficiary and the sole capital beneficiary. If X dies during the currency of the trust, there will be a gift over to her estate or to named individuals, such as children. X would then transfer capital property owned by her to the trust.
Further, you advised us that you are under some time constraints in this matter since your questions have arisen in connection with planning to be done for someone prior to a forthcoming remarriage.
As indicated in paragraph 23 of our Information Circular No. 70-6R we do not provide written opinions on proposed transactions. However, we are prepared to provide you with the following general comments.
In order for subparagraph 54(c)(v) of the Act to apply, a taxpayer must have capital and Income interests in the trust that have rights and attributes that are identical to the rights and attributes attached to the property transferred by him to the trust. The property is then legally owned by the trust but beneficially owned by the transferor through his capital and income interests in the trust.
Generally, it is our view that if anyone other than the settlor acquires a capital interest in the trust, the transfer of property by the settlor to the trust would result in a disposition under subparagraph 54(c)(iii) of the Act.
We suggest that you consider requesting a formal ruling concerning the proposed establishment of an inter-vivos trust to serve your client's needs.
The above comments are an expression of opinion only and are not binding on the Department.
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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