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.
Principal Issues:
Is a transfer of land to the beneficiaries of a
testamentary trust subject to the provisions of 107(2) and\or
54(c)(v) where the spouse of the testator has a life interest
therein?
Position TAKEN:
Both 54(c)(v) and 107(2) are applicable to the transfer.
Reasons FOR POSITION TAKEN:
54(c)(v) is applicable to the transfer of legal title from
the trust to the beneficiaries and 107(2) is applicable to the
distribution of the property to the beneficiaries. The spouse's
life interest was unchanged after the transfer.
April 19, 1994
Kingston District Office Trusts Section
B. Rumball Rulings Directorate
Audit Mana G. Kauppinen
(613) 957-4363
Attention: Craig Clayton
940848
XXXXXXXXXX
This is in reply to your facsimile transmission dated April 5, 1994 regarding the above-noted taxpayer.
All references herein to sections or components thereof are references to the Income Tax Act s.c. 1970-71-72, c. 63 as amended consolidated to June 10, 1993.
Specifically, you have requested our opinion as to whether a taxable capital gain arose on the transfer of land to the capital
beneficiaries of a testamentary trust which was created as a consequence of the death of XXXXXXXXXX
The terms of the will were that the land in question was to be held by the estate\trust for the sole use of the testator's
spouse (the "life interest") and upon her death the land would devolve in joint ownership equally to the testator's grandchildren. All the investment income from other assets held by the trust is to be paid to the testator's spouse during her lifetime and upon her death that income is to be divided equally between the testator's son and daughter. The will is silent as to what happens to the investments on the spouse's death or afterwards but in our opinion it seems clear that pursuant to the terms of the will no one, including the spouse, could obtain the use of the investments prior to her death.
On XXXXXXXXXX the legal ownership of the land was transferred from the trust to the grandchildren as joint tenants subject to the spouse retaining her rights as life tenant. It is our understanding that the investments were left in the trust.
Assuming our understanding of all the relevant facts is correct and that the transfer of the land was legal, it is our opinion
that had the transfer of the land not occurred the trust would have been a pre-1972 spousal trust (as defined at paragraph
108(1)(f.2)) on January 1, 1993 (assuming the spouse was alive on that date). However, because the land was transferred to the grandchildren prior to January 1, 1993 the trust did not meet the definition of a pre-1972 spousal trust on January 1, 1993 and therefore had a deemed disposition at fair market value of all capital property held by it on that date pursuant to paragraph 104(4)(b) unless a valid election can be made pursuant to subsection 104(5.3).
It is our view that the transfer and distribution of the land to the grandchildren was pursuant to the provisions of paragraph 54(c)(v) (in respect of legal title) and subsection 107(2).
Consequently the transaction resulted in no tax consequence either to the trust or to the grandchildren. The trust is deemed to have disposed of the property for proceeds equal to the adjusted cost base of the land to the trust and the grandchildrens' adjusted cost base in the land is the same amount.
There was also no tax consequence to the spouse because her life interest was unchanged by the transaction.
Acting Chief
Trusts Section
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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