19 June 1992 Roundtable, 9218430 F - Non Taxable Benefits To Beneficiary Of Trust (8167-5)

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.

Hong Kong Round Table

Guarantee provided by a Trust

Question

As indicated in Steven Cooper v. Her Majesty the Queen [1989] 1 CTC 66, 88 DTC 6525, a benefit received by a beneficiary does not necessarily give rise to a taxable benefit.  The Cooper case dealt with an interest-free loan provided by a residual trust from his fathers estate to a beneficiary under the trust.  The Federal Court Trial Division held that an interest-free loan made by the trust to the beneficiary did not constitute a taxable benefit to the beneficiary pursuant to subsection 105(l).

A Canadian resident individual is a beneficiary of a non-resident trust.  The individual borrows funds from the Hong Kong subsidiary of a Canadian financial institution.  The repayment of this borrowing is guaranteed by the non-resident trust. Will a Canadian beneficiary be considered to have received a taxable benefit for the purpose of subsection 105 (l).

Department's Position

It is the department's position that The Steven Cooper v. HMQ case concerns the taxability of interest-free loans emanating from a resident testamentary trust to a beneficiary under that trust.  The department notes that the determinaton of whether a benefit is taxable is a question of fact in each case, and it is not prepared at this time to extend the ratio in Cooper to other "benefits" received by beneficiaries under trusts.

Prepared by D. Patrick June 19, 1992.

BACKGROUND NOTES ON QUESTION 7

The Stephen Cooper case concerns the ability of the Federal Government to impose a tax on "benefits" received under a  trust pursuant to s. 105(1). In essence the question here is attempting to determine how far Revenue Canada will go in extending the ratio of the Cooper case on what we consider would be a non-taxable "benefit" emanating from a trust.  Although this case was not appealed it is important to note that the court specifically accepted Mr. Justice Cattanach's comments in Pillsbury Holdings 64 DTC 5184 that

In his Lordship's view, however, whether or not such a benefit was taxable was a question of fact in each case and no hard and fast rule could be stated to cover all cases. (at p. 6534)

In deciding not to appeal this decision, the Department took the position that this case was only applicable to "Similar or Identical cases".

The fact situation which is presented here does not concern an interest-free loan, and instead is concerned with a guarantee by a non-resident trust.  In the 1990 Round Table Discussions before the Canadian Tax Foundation we took the position that the Cooper case would be applied in "similar situations"  At the Round Table we also took the position that  subsection 105(l) may be applicable regardless of whether or not the beneficiary deals at arm's length with the trust.  (see q. 22 attached) 

I wish to bring to your attention a somewhat similar position taken at the 1990 Round Table, concerning loan guarantee's from non-residents for no consideration.  (see q. 44 attached)

21(1)(b)