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:
This is in reply to your letter dated November 18, 1993 regarding subparagraph 54(c)(v), subparagraph 75(2)(a)(i) and section 245 of the Income Tax Act ("Act").
Since your scenario appears to be in respect of actual proposed transactions we cannot respond specifically except in the context of a formal advance income tax ruling.
Nevertheless, we offer the following general comments for your consideration.
Where a living individual transfers legal title of property to a trust but retains beneficial ownership of that property the Department's position is that there will be no disposition of that property, pursuant to subparagraph 54(c)(v) of the Act, if the transferee trust is a "bare trust."
The Department considers a trust to be "bare trust" where the following conditions are satisfied:
1. During the settlor's lifetime he or she is the sole beneficiary of the income and capital of the trust.
2. The settlor retains the ability to, at any time, revoke, alter or amend the terms of the trust.
3. The settlor has the unfettered ability to deal with the property as he or she sees fit during his or her lifetime.
Where property is held by a bare trust the settlor will be considered to be the owner of the property for all purposes of the Act and as such the settlor will report all income and losses (including taxable capital gains and allowable capital losses) related to the property.
Although the Department considers the settlor/beneficiary to be the actual owner of the property for tax purposes, the fact that a trust nevertheless exists in trust law requires the filing of a T3 Trust Income Tax Return and Information Return in the circumstances explained in the T3 Guide.
In a situation where a settlor transfers property ("the property") to a trust which has the foregoing provisions, but also stipulates that income and/or capital interests of other beneficiaries, which are contingent during the settlor's lifetime, will vest upon the settlor's death, the trust will be considered to be a bare trust until the death of the settlor.
At the time of the settlor's death the property will be deemed to have been disposed of by the settlor at fair market value pursuant to subsection 70(5) of the Act (subject to the applicability of other provisions of the Act such as subsections 70(6) and 70(9)). If the terms of the trust indenture so provide, the property could be transferred to a testamentary trust (within the meaning of paragraph 108(1)(i) of the Act) upon the death of the settlor.
We hope the foregoing is of assistance.
Yours truly,
for DirectorManufacturing Industries, Partnerships and Trusts Division Rulings DirectorateLegislative and Intergovernmental Affairs Branch
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