3 March 1994 External T.I. 9336315 - NON-RESIDENT TRUST AND ATTRIBUTION

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.

XXXXXXXXXX 933631

March 3, 1994

Dear XXXXXXXXXX:

Re: Attribution and Gifts to a U.K. Trust

This is in reply to your letter of November 4, 1993 which was forwarded to us by B. Luhta. In your letter you advise that you are planning to make gifts into a trust for the benefit of your brother's children who are currently resident in the U.K. and ages three, six and eight. The trust will also be resident in the U.K.

As indicated in the attached copy of Information Circular 70-6R2, the Department does not comment on specific proposed transactions other than in the form of an advance income tax ruling. However, we offer the following general comments for your consideration.

The principal attribution sections that are relevant with respect to transfers of property, including gifts, to trusts are contained in subsections 75(2), 74.1(2) and 74.1(3) of the Income Tax Act (the "Act").

Pursuant to subsection 75(2) of the Act, where property is transferred to a trust and 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,

there will be attribution to the person of any income or loss from the property (or property substituted therefor), as well as any taxable capital gain or allowable capital loss from the disposition of the property (or property substituted therefor).

The application of subsection 75(2) of the Act would not depend on whether the trust or the beneficiaries are resident in Canada in a situation such as the one described in your letter.

Subsection 74.1(2), together with subsection 74.3(1) of the Act, provides that where a person has transferred or loaned property to a trust in which a related minor (which includes a niece or nephew) is beneficially interested there will be attribution of certain amounts. Generally, there would be no attribution under those subsections where neither the trust nor the beneficiaries are residents of Canada.

It should be noted that where property is transferred to a trust, the transferor is deemed to have received proceeds of disposition therefor equal to the fair market value of the transferred property pursuant to paragraph 69(1)(b) of the Act and thus may have a capital gain for income tax purposes.

We have attached copies of Interpretation Bulletins IT-369R and IT-510 which deal with the attribution provisions discussed above. You may wish to seek professional advice with respect to your proposal to ensure that all income tax and other matters are given full consideration.

While we trust our comments are of assistance to you, they do not constitute an advance income tax ruling and, consequently, 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