21 March 1990 Ministerial Letter 59698 F - Benefits under Family Trust - Ownership of Recreational Property

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.

March 21, 1990

Dear Sirs:

This is in reply to your letter dated February 12, 1990 in which you requested our comments with respect to the application of section 105 of the Income Tax Act ("Act") in specified circumstances involving the ownership of recreational property by a family trust.

In particular you are concerned about the application of section 105 of the Act where (i) the sole asset of the trust is recreational property, the trust has nil income, and its beneficiaries pay its maintenance costs directly or indirectly via advances to the trust, and (ii) the beneficiaries of the trust sign a rental agreement in respect of the recreational property under which the rental revenue equals its maintenance costs.

Our comments follow.

Generally, it is our position that a benefit will arise by reason of subsection 105(1) of the Act where the fair market rental of a recreational property of a trust exceeds the aggregate amount of payments by its beneficiaries of, for example, maintenance, taxes, etc. in respect of the property.  However, as indicated in our response to question 31 of the Round table Discussion at the November 1989 Canadian Tax Foundation Conference, where the property is personal use property of an individual (e.g., a cottage) we generally would not assess a benefit under subsection 105(1) it the trust effectively stands in the place of the individual and not benefit would have arisen if the individual had allowed the use of the property.

We concur with your view that subsection 105(2) of the Act would not apply to impute an amount of income to any beneficiary where the trust has no source of income, and its beneficiaries paid directly or indirectly all the upkeep, maintenance and taxes in respect of a recreational property that was property of the trust.

Should you wish to have the merits of a specific case considered by this Department we suggest that you forward all relevant information to our Assessing and Enquiries for review.

We trust that our comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate