16 November 1989 Ministerial Letter 58848 F - Trusts - Attribution Rules

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.

November 16, 1989

Dear Sirs:

This is in reply to your letter of October 10, 1989 in which you requested our views as to whether subsection 75(2) of the Income Tax Act ("Act") applies to the following hypothetical example.

     Assume that father settles an irrevocable trust resident in Canada with $100,000.00.  Father is the sole trustee.  The terms of the trust are totally discretionary as to income and capital payments.  The beneficiaries of the trust are father's adult children.

     The trust indenture provides that the trust will continue until the earlier of father's death or the day upon which father terminates the trust.  Upon the termination of the trust, the trust's capital will b divided equally amongst the beneficiaries then alive.

You are concerned whether subparagraph 75(2)(a)(ii) of the Act would apply to attribute certain amounts to the father.  We concur with your view that in order for this provision to apply the trustee would have after the creation of the trust and this is not the case in your example.

You are also of the view that where the sole trustee was not bound by e.g., a contract with the settlor (under which the trust property would only be disposed of with the settlor's consent) the trustee would have a fiduciary duty to act in the best interests of the beneficiaries of the trust.  Further, he may dispose of trust property for the benefit of the beneficiaries without causing the attribution rules (paragraph 75(2)(b) of the Act) to apply to the father in your example.

In your example the settlor/trustee is the same person and accordingly there does not seem to be any need for a contract as described above in order for the settlor to exercise control over the disposition of the trust property.  We continue to be of the view that, depending upon the facts, paragraph 75(2)(b) of the Act could apply to your example.

You are also concerned whether subparagraph 75(2)(a)(i) of the Act would apply to your example where, in addition to his children, father is a discretionary income and capital beneficiary.

In your example the father is the sole trustee and it seems clear that he could, in fact, exercise control over the disposition of such property for his own benefit, and therefore, the attribution rules in subsection 75(2) could apply to your example.

Should you have a specific case in mind we suggest that you request a ruling.

The above comments are an expression of opinion solely and, as such, do not bind the Department.  We trust that our comments are of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate