22 July 1992 Income Tax Severed Letter 9209655 - Variation of 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.

920965
                                           Marc Vanasse
        24(1)                              (613) 957-8953

Attention: 19(1)

July 22, 1992

Dear Sirs:

Re: Variation of Trusts

This is in reply to your letter dated March 26, 1992 wherein you requested our opinion as to whether various variations of a trust would result in the creation of a new trust and, thus, the disposition or deemed disposition of the property by the trust.

As discussed during our telephone conversation of June 15, 1992 (Vanasse/ 19(1) ), the Department is not in a position to give you a definitive response as to the tax consequences regarding variations of trusts as this involves a thorough review of all governing documents and a finding of fact. However, we can offer you the following comments which may be of assistance.

It is our opinion that, in general, a variance of a trust may have the consequence of causing the trust to be resettled if the variance is of significant magnitude to cause a fundamental change in the terms of the trust. If this occurs there would be an actual disposition of the trust's property from the "old" trust to the "resettled" trust.

However, a variation of a trust affecting only administrative or investment powers, for example, would generally not create a taxable event. In addition, provisions for naming replacement trustees or extending or amending powers of the trustees, such as to authorize the trustees to "freeze" some or all the assets of the trust, would not normally, in and by themselves create a taxable event.

With respect to a variation of a trust which would add discretionary beneficiaries, serious consideration should be given as to whether such a variation constitutes a disposition of any interests in the trust. The decision in Murphy v. The Queen 80 DTC 6314 (F.C.T.D.), implied that beneficiaries agreeing to a variation in the terms of the trust will have disposed of their interests in the trust by consenting to the variation. Accordingly, the Department may view such a variation as a disposition by each beneficiary of part of their interest in the trust to or for the benefit of the new discretionary beneficiary.

With respect to a variation which would prolong the distribution date of the trust's capital, we are unable to provide general rules of application. The Department prefers to analyze such a variation on an advance income tax ruling basis. However, in analyzing the purpose of a prolongment, the Department may accept, in some instances, that such a prolongment does not result in a disposition of the trust property to a new trust nor would such a variation cause subsection 107(2) of the Income Tax Act to apply.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts Division Rulings Directorate Legislative and Intergovernmental Affairs Branch

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information