17 April 1990 Ministerial Letter 59828 F - Winding-up of a Trust

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.

April 17, 1990

Dear Sirs:

Re:  Winding Up of a Trust

This is in reply to your letter of March 7, 1990 concerning the transfer of a life insurance policy from one trust to another trust.

You describe a situation in which a trust was wound up, a new trust was created and a life insurance policy issued before December 2, 1982 was transferred from the former trust to the new trust. With respect thereto, you ask if subsection 107(2) of the Income Tax Act (the "Act") applies to allow a tax-free "rollover" of the life insurance policy and whether the policy would retain its status, in the hands of the new trust, as a life insurance policy last acquired before December 2, 1982 for the purposes of section 12.2 of the Act.

Our Comments

Since an actual completed transaction is involved, your query should be directed to the relevant district taxation office.  The following are comments that apply generally to the type of situation described above.

Subsection 107(2) of the Act does not apply, as a general rule, where property is transferred from one trust to another.  However, subparagraph 54(c)(v) of the Act provides that a disposition for the purposes of the Act does not include

     "any transfer of property by virtue of which there is a change in the legal ownership of the property without any change in the beneficial ownership thereof..."

Where property is transferred from one trust to another trust and the beneficial interests in the two trusts are identical, there generally will not be a disposition of the property by virtue of the subparagraph 54(c)(v) exclusion.  Where there is no disposition and the transferred property is an interest in a life insurance policy last acquired before December 2, 1982, it is our view that the transferee trust would hold an interest in a life insurance policy last acquired before December 2, 1982 for the purposes of section 12.2 of the Act.

Where a property is transferred from one trust to a newly created trust and the transaction is an avoidance transaction as described in subsection 245(3) of the Act, subsection 245(2) of the Act will apply to redetermine the tax consequences in respect of the application of paragraph 104(4)(b) of the Act.

The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 24 of Information Circular 70-6R.  We trust however that they are of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate