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.
PRINCIPAL ISSUES:
Use of trust to hold shares of family farm corporatatio
POSITION TAKEN:
Must be restricted to IT-268R3 para 21
REASONS FOR POSITION TAKEN:
Trust rules can be used to defer future gains which may be taxable under farm corporation rules
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
Re: XXXXXXXXXX
This is in reply to your letter of April 20, 1994, wherein you submitted additional representations in support of the advance income tax rulings requested on behalf of the above noted taxpayers.
With respect to certain specific arguments advanced in your letter concerning the conditions specified in paragraph 21 of Interpretation Bulletin IT-268R3, our comments are as follows:
1. We do not agree that the property, the capital stock of a family farm corporation, will be held for the exclusive benefit of a particular child. A child could be deprived of the beneficial ownership of the shares if the trust decides to sell the farm shares. Subsequent to that sale, the proceeds, net of taxes payable, form part of the non-farm property of the trust and because the trust is discretionary with respect to the non-farm property the child could be deprived of the benefits of ownership. In our view, if the property is held for the "exclusive benefit" of a particular child, both the proceeds of any sale and income derived therefrom must be for the exclusive benefit of that child.
2. Subparagraph 21(c) provides for a distribution to the child when that child has attained a particular age. Clearly, this requirement cannot be satisfied if the child dies before that age. Accordingly, there is a requirement "for the distribution of that property to the child's estate upon the child's death before that age." In our opinion, that requirement is not satisfied where the interest in the trust is distributed to the child's estate and the property itself is distributed to the subsequent beneficiary on the date when the child would have attained the specified age.
We recognize your efforts to meet the requirements of the administrative policy and, at the same time, to satisfy the estate planning needs of your clients. Nevertheless, in the course of our review we have come to the conclusion that a trust can only be used to hold the capital stock of a family farm corporation in very restrictive circumstances.
If your clients wish to obtain a favourable ruling it will be necessary to amend the terms of the proposed trusts to conform with the conditions specified in paragraph 21 of IT- 268R3. If you have any questions concerning this letter please contact D. Watson.
Yours truly
for DirectorManufacturing Industries, Partnerships and Trusts DivisionRulings Directorate
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