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.
931194
XXXXXXXXXX G. Kauppinen
(613) 957-4363
Attention: XXXXXXXXXX
September 16, 1993
Dear Sirs:
Re: Subsection 105(1) of the Income Tax Act ("Act")
This is in reply to your letter dated April 19, 1993 regarding the application of subsection 105(1) of the Act where the terms of the will of a deceased individual provide that the surviving spouse (the "life tenant") can reside in the deceased individual's former home "rent free" for his or her lifetime.
It is our position that a benefit will arise pursuant to subsection 105(1) of the Act where the fair market rental of a real property held by a trust exceeds the aggregate amount of payments by a life tenant of, for example, maintenance, taxes, etc. in respect of the property. However, where the property would be personal use property of a life tenant (e.g. a home or cottage) pursuant to subclause 54(f)(i)(A) of the Act if the life tenant owned the property, we generally would not assess a benefit under subsection 105(1) of the Act where the trust effectively stands in the place of the deceased individual and no benefit would have arisen if the deceased individual, during his lifetime, had allowed the use of the property to the life tenant.
However, notwithstanding the foregoing, if the life tenant has no further rights under the trust but the Executors encroach upon the capital of the estate to pay for expenses related to the maintenance of the property such as property taxes, insurance and repairs (the "expenses"), then the life tenant would be required to include the amount of such expenses in income pursuant to subsection 105(1) of the Act.
To the extent that the trust pays the expenses out of its income, expenses for which the life tenant would be personally responsible if he or she owned the property instead of the trust, a benefit in respect of such expenses would be included in computing the income of the life tenant for the year such expenses were paid pursuant to subsection 105(2) of the Act.
If the property were kept available for the life tenant's use (i.e. not rented) but the life tenant did not occupy the property, the same benefits, as described above, would be included in the life tenant's income that would have been had he or she occupied the property. However, if the trust rented the property to a third party and distributed the net rental income to the life tenant (assuming the will provided for this) then no benefit would be included in the life tenant's income pursuant to either subsection 105(1) or (2) of the Act. All expenses relating to the property would be deducted from rental income of the trust or capitalized to the property, as is appropriate, by the trust. The net rental income paid or payable to the life tenant by the trust would be included in his or her income pursuant to subsection 104(13) of the Act.
While we trust our comments are of assistance, as stated in paragraph 22 of Information Circular 70-6R2, they constitute an expression of opinion only and are not binding on Revenue Canada—Customs, Excise and Taxation.
Yours truly,
for Director Manufacturing Industries, Partnerships and Trusts Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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