28 October 1994 External T.I. 9418635 - TRANSFER PROPERTY TO A BARE 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.

Principal Issues:

Has there been a disposition of property where a taxpayer transfers legal title to a property to a bare trust without transferring beneficial ownership?

Position TAKEN:

no

Reasons FOR POSITION TAKEN:

Our views are described in the paper on bare trusts presented at the 1989 Corporate Management Tax Conference.

		941863
XXXXXXXXXX	A. Seidel

Attention: XXXXXXXXXX

October 28, 1994

Dear Sirs:

This is in reply to your letter dated July 13, 1994 with respect to the application of paragraph 69(1)(b) of the Income Tax Act (the "Act") in the situation where a bare trust holds certain patents, trademarks, and copyrights ("intellectual property") used exclusively by a corporation in its worldwide business.

The situation described in your letter appears to involve a series of actual proposed transactions and accordingly, should be the subject of an advance income tax ruling. Should you wish to request an advance income tax ruling on these or other proposed transactions, please refer to the procedures outlined in Information Circular 70-6R2. Although we are unable to provide you with any opinion with respect to the specific transactions described in your letter, we can provide you with the following general comments.

Whether or not a series of transactions results in a disposition of property is a question of fact which can only be determined after a review of all of the completed transactions. In the situation where legal title to a property is transferred by a taxpayer to a bare trust without a corresponding transfer of beneficial ownership, it is generally our view that there has not been a disposition of property by the taxpayer. The Department's views concerning bare trusts are described in the paper titled "Bare Trusts" presented as part of the Revenue Canada Panel at the 1989 Corporate Management Tax Conference.

There may also be other provisions in the Act which could apply. For instance, paragraph 18(1)(a) of the Act provides a general limitation on the deductibility of outlays and expenses in computing a taxpayer's income from a business or property. No deduction may be made by a taxpayer in respect of an outlay or expense except to the extent that it was made or incurred for the purpose of gaining or producing income. Any expenses incurred by the bare trust with respect to the intellectual properties and any fees paid to the trustee could be denied if they are not incurred to earn income from a business or property. Section 67 of the Act may also apply to deny the deduction of an amount in respect of an outlay or expense except to the extent that the outlay or expense was reasonable in the circumstances.

These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch