27 January 1994 External T.I. 9332575 F - Attribution of Income

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Subsection 75(2) of the Income Tax Act (the "Act")

This is in reply to your letter of November 10, 1993 concerning subsection 75(2) of the Act.

Your request appears to be a factual situation involving specific clients. As explained in Information Circular 70-6R2, it is not the Department's practice to comment on proposed transactions other than in the form of an advance income tax ruling. Paragraph 15 of that circular describes how to request an advance income tax ruling. Should the situation involve a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. While we are not in a position to give you a definitive response to the situation described in your letter, we offer the following general comments which may be of assistance to you.

As indicated in paragraph 3 of Interpretation Bulletin IT-369R, pursuant to subsection 75(2) of the Act, there will be attribution to the person from whom the property was directly or indirectly received if the terms of the trust are such that the property:

(a)     may revert to the person,

(b)     may be distributed to beneficiaries to be determined by that person at a time after the trust was created, or

(c)     may only be disposed of with the consent of, or at the direction of, that person while alive.

Additionally, as indicated in paragraph 11 of that bulletin: "...a person other than the settlor may transfer property to a trust under one or more of the conditions described...above and become subject to the attribution rules of the subsection."

Thus, subsection 75(2) of the Act does not depend on whether the property was disposed of by the person to the trust at fair market value. It depends on whether property is held by the trust under one or more of the conditions described above.

If the terms of the trust are such that there is a possibility, however remote, that the person may reacquire the property (or property substituted for that property) then subsection 75(2) of the Act would apply. This would include a situation where the terms of the trust provide that the person may reacquire the property as a consequence of the death of the last of all other beneficiaries under the trust. It would also include a situation where the person is a contingent beneficiary in the event of the death of the last of all other beneficiaries and the property may revert to the person by virtue of the terms of the trust. However, where the property may revert to the person by operation of law only, e.g., a total failure of the trust for lack of beneficiaries, 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.

This opinion is not an advance income tax ruling. It represents our opinion of the law as it generally applies and is provided in accordance with the conditions set out in Information Circular 70-6R2.

Yours truly,

for DirectorManufacturing Industries, Partnerships and Trusts Division Rulings DirectorateLegislative and Intergovernmental Affairs Branch