9 December 1992 Income Tax Severed Letter 9228295 - Blind 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.

Office of the Assistant Deputy
Registrar General of Canada
22nd Floor 922829
66 Slater Street M. Eisner
Ottawa, Ontario (613) 957-2138
K1A 0C9

Attention: Mr. Andre D. Levassseur
Chief Advisor

December 9, 1992

Dear Sirs:

Re: Blind Trusts

This is in reply to your letter of September 28, 1992 concerning the tax implications in respect of reimbursements of certain trust expenses incurred by a public office holder.

Your concern relates to the "Conflict of Interest and Post- Employment Code for Public Office Holders" (the "Code") and an arrangement known as a blind trust. We also wish to acknowledge that your submission included a copy of the Code and the most recent blind trust agreement.

In order to avoid any conflict of interest, one of the compliance measures set out in the Code involves the divestment of assets. Public Office Holders (POHs) who are obliged to divest themselves of certain assets pursuant to the Code may place them in a blind trust. In general, the effect of the blind trust agreement (the "Agreement") you enclosed is that the trustee(s) thereof has complete discretion to deal with assets transferred to the trust but are explicitly prohibited from disclosing to the settlor, or anyone on the settlor's behalf, the nature or the composition of the trust assets.

A POH who establishes a blind trust for the purposes of complying with the Code may, on the recommendation of the Assistant Deputy Registrar General, receive a reimbursement from the Government of Canada in respect of certain costs that are incurred. Such costs, as set out in Article 8 of the Schedule to the Code, include the annual, actual and reasonable costs incurred to maintain and administer the trust (the "Maintenance Costs"), as follows:

• (i) Up to a maximum of $500 for a portfolio with a market value of 100,000 or less, or
• (ii) Up to a maximum of $5000 for a portfolio with a market value over $100,000; 1/2 of 1% on the first $400,000 and 1/4 of 1% on the remaining value.

In connection with a reimbursement of Maintenance Costs incurred by a POH with respect to a blind trust, you have indicated that while recommendations are only made on the basis of the limits set out above, the calculations of reimbursements are based on the market value of all assets entrusted. In relation to these circumstances, your concern is whether a POH would receive a benefit as a consequence of contributing cash at various times to a blind trust subsequent to the establishment thereof or establishing a blind trust with cash.

Our Comments

Whether or not a reimbursement described above is subject to tax depends on whether a recipient POH is considered to have received a benefit "in respect of, in the course of, or by virtue of" his or her office or employment for the purposes of paragraph 6(1)(a) of the Income Tax Act. It is the Department's general position that a reimbursement of Maintenance Costs incurred by a POH with respect to a blind trust does not constitute a benefit because the POH is obliged to incur the expense only by reason of his or her employment.

On the basis that cash is contributed to a blind trust by a POH (or a blind trust is established by the POH with cash) for the purpose of enabling the trustee to have uncontrolled discretion to invest the cash in whatever assets the trustee(s) considers appropriate (including assets which could result in a conflict of interest if the POH (settlor) were to acquire them), it is our general view that the cash assets would not cause the position set out in the preceding paragraph to be inapplicable.

We would also note that reimbursed Maintenance Costs incurred by a POH with respect to a blind trust are not deductible by the POH in computing his or her income from an office or employment or from property.

Should you require any further clarification, we would be pleased to provide our views.

Yours truly,

J.S. Szeszycki
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch