30 June 1994 External T.I. 9408895 - TRUSTS - MEANING OF "VESTED INDEFEASIBLY"

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.

			940889
XXXXXXXXXX	L. Holloway

Attention: XXXXXXXXXX

June 30, 1994

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letter dated May 10, 1994, wherein you requested an advance income tax ruling on behalf of the XXXXXXXXXX (the "Trust").

The central issue of your request was whether the terms of the Trust comply with the conditions of subparagraph 108(1)(j)(i.1) of the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act"). That is, you requested that we rule that all interests in the Trust have vested indefeasibly and no interest in the Trust may become effective in the future.

Such a determination is primarily a question of fact and consequently, the Department is unable to provide a ruling thereon. However we can, as set out below, express an opinion based on our understanding of the following facts:

Facts

XXXXXXXXXX

Opinion

The expression "vested indefeasibly", was recently interpreted in The Queen v. Boger Estate, 93 DTC 5276(FCA). In Boger, the trial Court, after discussing the nature of an interest/right that is vested in possession as distinct from a contingent or future interest, pointed out that (page 5514):

A vested interest is liable to be defeated or "defeasible" if it is subject to a condition subsequent or a determinable limitation...(citing a book)..."a condition subsequent is created by the addition of a condition to a grant which may cut the estate short at the instance of the grantor." It thus appears that to be vested "indefeasibly" an interest must not be subject to a condition subsequent or determinable limitation set out in the grant.

In order to apply this interpretation it is necessary to ascertain whether the beneficiaries' respective interests in the Trust had vested without either a condition subsequent or determinable limitation attached thereto.

The condition subsequent relates to the revocability of the Trust or of the beneficiaries' beneficial interests in the Trust/Trust property. Since there is no provision in the Trust Agreement that would divest/defeat the beneficiaries of their particular beneficial interests, the only provision remaining for consideration is

XXXXXXXXXX

the following arguments were addressed:

A.It is arguable that since the Trust Agreement did not expressedly provide for its revocation, the Trust was not revocable. The Court in the case of Manitoba Heritage Federation Inc. v. Government of Manitoba et al., (1993) 105 D.L.R.. (4th) 572(Man. CA) pointed out that the expression of "termination of the agreement" is ambiguous. As XXXXXXXXXX did not attempt in his lifetime to terminate the agreement or revoke the Trust, the interpretation of the agreement termination clause must be based on the intention of the settlor. As the intention of the settlor is entirely a question of fact, we assume that, based on XXXXXXXXXX will and the fact that he did not terminate the agreement while alive, he did not intend nor consider the Trust to be revocable.

B.It is arguable that after XXXXXXXXXX death (if not during his life), his wife and his son could apply to the Alberta Court under Alberta law for an order to terminate and wind up the Trust on the basis that their interests in the Trust property had indefeasibly vested.

C.It is also arguable that upon and from XXXXXXXXXX death the agreement cannot be terminated under XXXXXXXXXX of the Trust Agreement and that if the termination clause included the power to revoke the Trust, that power also ceased to exist upon his death. Therefore, the beneficiaries' beneficial interests have vested indefeasibly upon and from his death.

D.On the basis of the reasoning in the above Manitoba Heritage case, it is arguable that the Trust was not a trust revocable by or on the termination of the Agreement by XXXXXXXXXX during his life, seeing that, following that reasoning, his termination of the agreement would only terminate his powers (XXXXXXXXXX) over disposition of the units under the agreement.

E.The sole mention of trust termination in the Trust Agreement is in the proviso in XXXXXXXXXX On the basis of this sole mention, it is arguable that XXXXXXXXXX was aware of the distinction between termination of the Agreement and revocation of the Trust thereunder created, because he did not provide elsewhere in the agreement for revocation of the Trust upon certain conditions.

In our opinion, based upon the consideration of the forgoing facts and arguments, all the beneficial interests of the beneficiaries under the Trust were "vested indefeasibly" at the creation of the Trust or, at the latest, on XXXXXXXXXX death, and no interest in the Trust would become effective in the future, as required by subparagraph 108(1)(j)(i.1) of the Act.

In accordance with paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada, Customs, Excise and Taxation, the foregoing opinion is not an advance ruling and accordingly is not binding on the Department. Your deposit will be returned under separate cover.

Yours truly,

for Director
Manufacturing Industries, Partnerships,
and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch