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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Subsection 105(1) Benefits
This is in reply to your letter dated December 9, 1992, wherein you requested a technical interpretation regarding subsection 105(1) of the Income Tax Act (the "Act").
More specifically, you have requested whether subsection 105(1) of the Act can apply to individuals receiving benefits from a trust if they are not beneficiaries of the trust. In addition, you have requested whether the Department would extend its administrative position, as expressed in our reply to question 69 of the Revenue Canada Round Table at the 1988 Canadian Tax Foundation Conference, to individuals who are not beneficiaries of the trust.
The particular circumstances outlined in your letter appear to be actual transactions involving specific taxpayers. As mentioned in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, it is not the practice of this Department to provide opinions on contemplated transactions other than in the form of advance income tax rulings. On the other hand, the tax consequences of completed transactions are best determined by our District Offices in the course of tax audits. This Directorate is therefore not in a position to give you a definitive response to your general inquiry. However, we are prepared to offer you the following general comments which may be of some assistance.
There is no requirement in subsection 105(1) of the Act that the taxpayer who receives a benefit from a trust has to be a beneficiary of the trust. The term benefit is not defined in the Act and should therefore take its usual meaning. This term is used in several provisions of the Act, namely, paragraph 6(1)(a), subsections 15(1), 56(2), 246(1) and 246(2). The term beneficiary, as defined in paragraph 108(1)(b) of the Act, includes a person beneficially interested in a trust. It could also include a person who receives benefits from the trust. It is a matter of trust law to determine whether or not a person who is not designated as a beneficiary under the trust deed can be entitled to receive benefits from a trust.
As stated at the 1988 and 1989 Revenue Canada Round Tables, in the case of property that would be personal-use property of an individual, such as a home or cottage, the Department would generally not seek to assess a benefit for the use of the property where the trust was effectively standing in the place of the individual and no benefit or advantage would have arisen if the individual, instead of the trust, had allowed the use of the property. Notwithstanding these comments, a benefit in respect of the upkeep, maintenance or taxes for such properties may arise pursuant to subsection 105(2) of the Act.
In circumstances where subsection 105(1) is considered to apply, the value of the benefit should be based on fair market value - that is, the rent for a comparable property, net of costs incurred. The use of an imputed value approach also will be considered in the absence of fair market value information.
Personal-use property is defined in subsection 248(1) of the Act and has the meaning assigned by section 54 of the Act. It includes property owned by a taxpayer primarily for the personal use or enjoyment of the taxpayer or the personal use or enjoyment of one or more individuals each of whom is
(a) the taxpayer, (b) a person related to the taxpayer, or (c) where the taxpayer is a trust, a beneficiary under the trust or any person related to the beneficiary.
Consequently, the administrative position referred to above would extend to the parents of a beneficiary, with the effect that no subsection 105(1) benefit would be assessed.
These opinions do not constitute advance income tax rulings and consequently are not binding on the Department.
Yours truly,
for Director Manufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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