29 November 1995 CTF Roundtable Q. 33, 6M11900 - TRANSFERS OF PROPERTY TO REVOCABLE LIVING TRUSTS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

	Transfer of property to a revocable living trust. Is 	paragraph (e) of section 54 applicable? If not, is it a 	full or partial disposition?

Position:

Full disposition at fair market value.

Reasons:

See files E6M1189 and 941989

Canadian Tax Foundation
November 29, 1995

The following is the (partial) text of a presentation given on November 29, 1995 by Michael Hiltz of the Income Tax Rulings and Interpretations Directorate of Revenue Canada at the annual conference of the Canadian Tax Foundation held in Toronto.

REVENUE CANADA REVIEW
47th Annual Conference - Canadian Tax Foundation

Opening Remarks

Publication of all Advance Income Tax Rulings

Merger of Income Tax Rulings and Technical Publications

1.Trusts
(a) Revocable Living Trusts
(b) Protective Trusts
(c) Bare Trusts

Revocable Living Trusts

Some people use a revocable living trust to avoid the potential impact of provincial probate taxes. By the Declaration of Trust the settlor is a trustee and, during his or her lifetime, is the sole income and capital beneficiary. The settlor retains the ability to revoke, alter or amend the terms of the trust at any time. Additionally, the settlor has the unfettered ability to deal with the property as he or she sees fit during his or her lifetime. The Declaration of Trust further provides for the vesting of the income and capital interests in the trust in other beneficiaries at the time of the settlor's death.

Revenue Canada has previously opined that because the settlor retained beneficial ownership of the property during his or her lifetime, a transfer of property to a revocable living trust resident in Canada would not be a disposition of property pursuant to paragraph (e) of the definition of "disposition" in section 54 and that we would ignore the trust for income tax purposes during the lifetime of the settlor. Consequently, the settlor would be considered to be the owner of the property for all purposes of the Act.

Recently, we have received a number of technical interpretation requests concerning the income tax consequences of a transfer of property to a revocable living trust. In connection with these requests we reconsidered our previous opinion, our response to question 33 of the Revenue Canada Round Table at the 1988 Canadian Tax Conferencei, and the relevant jurisprudence and literature.

It is now our opinion that a revocable living trust should be recognized for income tax purposes at the time that legal title to property is transferred to it and that the transfer of the property is at its full fair market value (and not at the value of the remainder interest only). Consequently, our response to question 33 of the 1988 Revenue Canada Round Table is withdrawn and the income tax consequences of transactions completed by taxpayers who relied on our previous opinion on transfers of property to a revocable living trust will be determined on a case by case basis. Subsection 75(2) will be applicable during the lifetime of the settlor while he or she is resident in Canada.

i.In response to question 33 of the Revenue Canada Round Table, we stated that a transfer of property to a trust where the transferor retained a lifetime income interest was a disposition at fair market value of the remainder interest only.

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