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.
F. B. Fontaine
May 6, 1993
Re: Request for Technical Interpretation of
Subsections 75(2) and 107(4.1) of the Income Tax Act
This is in reply to your letter dated October 6, 1992 concerning an irrevocable trust created in the late 1960's by a taxpayer (the "settlor") for the benefit of his children and grandchildren.
Based on our telephone conversation of April 7, 1993 (Fontaine/XXXXXXXXXX), our understanding of your concerns is whether:
(i)where there are no trust conditions under which property of the trust could revert to the settlor, subsection 75(2) of the Income Tax Act (the"Act") would apply if, by virtue of the operation of law and in the unlikely event all of the beneficiaries were to die before the settlor, the property of the trust would revert to the settlor, and
(ii)based on (i) above, subsection 107(4.1) of the Act would apply on a distribution of property from the trust to the beneficiaries of all or part of their capital interests in the trust.
Based on the Department's comments in paragraph 21 of Information Circular 70-6R2 (the "Circular") regarding requests in respect of a contemplated or completed transaction, we are prepared to offer the following general comments:
1.If under the terms of a trust (i.e. as a consequence of a condition contained in the trust indenture), there is a possibility, however remote, that the settlor may reacquire property (or substituted property for that property) which the settlor directly or indirectly contributed to the trust, it is our view that in such circumstances the provisions of subparagraph 75(2)(a)(i) of the Act could have application. In this regard, the second sentence of the second part of paragraph 3 of Interpretation Bulletin IT-369R should usually be read as referring to a reversion contemplated or specified in the wording of the trust document rather than a failure of the trust described in 2 below.
2.As with many avoidance provisions of the Act, the potential application of subparagraph 75(2)(a)(i) of the Act will depend on the facts of the particular situation, including the terms of the trust documents. However, where property of a trust could "revert" to the settlor of the trust by operation of law only, (e.g., total failure of the trust for lack of beneficiaries or impossibility of purpose) and not pursuant to any condition under the trust indenture, it is our opinion that such a situation would not normally constitute a reversion contemplated by subparagraph 75(2)(a)(i) of the Act.
3.It is our opinion that subsection 107(4.1) of the Act would not apply in respect of distributions made by a trust where subsection 75(2) of the Act was not applicable at any time in respect of property of the trust.
These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case. As stated in paragraph 21 of the Circular, written opinions are not advance rulings and, accordingly, are not binding on the Department.
We hope our comments will be of assistance to you.
Partnerships and Trusts Division
Legislative and Intergovernmental
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