29 October 1986 Income Tax Severed Letter 7-0898

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.

XXX

This is in reply to your round trip XXX of July 24, 1986 concerning payment made by the estate to XXX to a non-resident individual.

We never reviewed the comments attached to your XXX and it is our understanding that:

XXX

It is our understanding that a "bare trust" is one where the trustee has common-law ownership of the trust property but is under the control and direction of the beneficial owner of the trust property. This would appear to have been the relationship between XXX as clarified in the Trust Acknowledgement.

For income tax purposes, subsection 248(1) of the Act states that the word "trust" has the meaning assigned in subsection 104(1) of the Act. Subsection 104(1) merely clarified that a reference to a trust shall be read as a reference to a trustee, executor, etc. who has ownership or control of the trust property.

It is our opinion that the Income Tax Act does not distinguish between the various types of trusts available to beneficiaries. One must merely review the document to determine whether a trustee exists which has legal ownership or control of trust property. In XXX situations, it would appear from the attached documents that XXX was holding the mortgage in trust for XXX. Accordingly, for income tax purposes a trust was created at the time that XXX require ownership of the trust property.

Subsection 100(5) of the Act provides that except for specific flowthroughs provided in the act, all amount received by the beneficiary out of a trust are deemed to be income of the beneficiary for the year from property that is an "interest in a trust" and not from any other source. The only flowthrough permitted under the Act in respect of interest earned by a trust is in subsection XXX of the Act. However, this provision is limited to residents of Canada and would not apply if paid to a non-resident.

Accordingly, it is our view that payments made to XXX would not fall within paragraph 212(1)(b) but would fall within paragraph 212(1)(c) by virtue of subsection 10(3). Consequently, such payments made from the trust to XXX should be subject to 25 per cent withholding since the Canada-Switzerland Income Tax Convention does not provide for a reduced rate of withholding tax on interest from a trust.

We are of the view that the trust created between XXX will continue to be treated in the same manner after the death of XXX. The only difference is that the executor will be acting as trustee for the trust until the property is transferred from the trust.