13 February 1990 Administrative Letter 74086 F - Moneys Held by Court Pending Settlement of Dispute - Fiduciary Duty

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.

Subject:  24(1)

This is in reply to your memorandum dated June 12, 1989 wherein you requested our opinion on the following matters:

Background

24(1)

23

Comments

1.     To our knowledge, this Department has no published position on this particular situation.  However, we have taken the position that, in situations where monies are held by a court pending settlement of a dispute, no amounts are taxable until the dispute is settled.  At this time, all accumulated income would be taxable to the recipient in the year of receipt, regardless of the year in which it was earned or accrued.  This position was based on the premise that the Crown cannot be placed in the position of a trustee by implication and no amounts could be considered payable or receivable until the dispute was settled.

2.     In the case of funds deposited with a lawyer pending a court order or settlement, we take the position that income earned on such amounts is properly income of a trust but that, if waivers are filed by all litigants and the lawyer trustee, the Department will defer assessment of the income until the recipient is finally determined (see IT-129R, paragraph 10). Presumably, we would tax the trust each year if all waivers were not obtained.

3.     21(1)(b)

4.     23

Position

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You have also requested our opinion with respect to the following specific questions:

Question 1

24(1)

Question 2

Does a normal "agency" arrangement constitute an "...other like person..." for the purposes of 159(2)?

Opinion

It is our opinion that an agent dealing with his principal's property in the agency will generally be an "..other like person..." for the purposes of 159(2).  (See question 4 below).

Question 3

Is the application of 159(2) restricted to arrangements where someone is acting in a "fiduciary" capacity?

Opinion

Prior to the 1985 amendment of subsection 159(2) we had expressed the opinion that the subsection should be restricted to persons charged with a fiduciary duty to distribute the taxpayer's property to the general benefit of his creditors or beneficiaries but these persons would not include a receiver appointed under a debenture, or for that matter a court appointed receiver.  In 1985, subsection 159(2) was amended to add receiver and receiver-manager to the class of "responsible representative."  With the exception of a receiver or receiver-manager, our above-noted opinion remains unchanged.

It should be noted that the wording of subsection 159(2) is restricted to the particular persons and their like acting as described therein and should not be confused with the indefinite term "fiduciary".  Saying that a person is a fiduciary (e.g. a banker or a secured creditor/mortgagee) does not necessarily make the person such a "like person" within subsection 159(2)

Question 4

For the purposes of 159(2) is an agency a fiduciary capacity?

Opinion

It is our understanding that an agent who has property given to him by his principal for sale, investment or safe custody does, in fact have a fiduciary obligation to his principal. Consequently it is our opinion that an agent would normally fall within the ambit of subsection 159(2) in most practical situations, including the case under consideration.

ChiefDeferred Income Plans and Trusts SectionFinancial Industries DivisionRulings Directorate