18 August 1994 External T.I. 9416425 - CANADIAN BENEFICIARY OF FOREIGN TRUST

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.

		941642
XXXXXXXXXX	L. Holloway

Attention: XXXXXXXXXX

August 18, 1994

Dear Sirs:

Re: Section 94 - Technical Interpretation

This is in reply to your letter dated June 24, 1994, requesting a technical interpretation on the application of section 94 of the Income Tax Act (the "Act") in the situation outlined in the following paragraph.

A Canadian resident taxpayer has three adult children, two of whom are resident in the United States and one of whom is resident in Canada. The taxpayer intends to settle a foreign trust whose beneficiaries will be the three adult children. However, the trust will be drafted to specify that the Canadian resident adult child will not have a right to receive any income or capital of the trust unless she ceases to be a resident of Canada. You ask if paragraph 94(1)(a) of the Act would apply to the trust. (It is assumed that the provisions of subparagraph 94(1)(b)(i) apply).

Our Comments

The scenario you have described appears to reflect an actual contemplated transaction and, as stated in paragraph 21 of Information Circular 70-6R2, we are not prepared to comment on specific contemplated transactions other than in the form of an advance income tax ruling. However, we can provide you with the following general comments.

The definition of "beneficially interested" in subsection 248(25) of the Act includes persons with contingent interests in a trust. As the Canadian resident adult child is a contingent beneficiary of the trust described, subparagraph 94(1)(a)(i) would apply to this trust.

Consequently, section 94 of the Act would apply if at any time in the taxation year of the trust the third adult child was a Canadian resident. Section 94 would not apply when this child is not resident of Canada at any time in a taxation year of the trust.

While we trust these comments will be of assistance, 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
Policy and Legislation Branch