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:
Estate-freeze - Application of subsection 75(2) of the Act where one of the trustee was the settlor and decisions are taken according to a majority vote.
Position TAKEN:
Since the settlor of the trust is also a trustee, it is our opinion that paragraph 75(2)(b) of the Act would apply as the property held by the trust could only be disposed of with the consent or in accordance with the direction of the settlor of the trust.
Reasons FOR POSITION TAKEN:
CCM 920736 and 5-8210
951427
XXXXXXXXXX (613) 957-8953
Attention: XXXXXXXXXX
August 21, 1995
Dear Sirs:
Re: Subsection 75(2) of the Income Tax Act (the "Act")
We are replying to your letter dated May 17, 1995 wherein you requested our opinion as to whether we would consider the application of subsection 75(2) of the Act as it pertains to your particular fact situation. We apologize for the delay in responding to your inquiry.
As explained in Information Circular 70-6R2, it is not the Department's practice to comment on proposed transactions other than in the form of advance income tax rulings. Taxpayers seriously contemplating proposed transactions are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve completed transactions, you should submit all relevant facts and documentation to the appropriate taxation district office for their views. We are therefore not in a position to give you a definite response as to the application of the provisions of the Act. However, we can offer you the following general comments which may be of assistance although, in certain circumstances, they may not be appropriate to your specific situation.
You state in your letter that under the trust agreement, trustees decisions are made by majority vote, provided that the settlor must be in the majority while he is a trustee. Since the settlor of the trust is also a trustee, it is our opinion that paragraph 75(2)(b) of the Act would apply as the property held by the trust could only be disposed of with the consent or in accordance with the direction of the settlor of the trust. As a result, subsection 75(2) of the Act will only apply to attribute the income or loss referred to in this subsection to the settlor-trustee from whom the property was directly or indirectly received. Our answer would be the same if the trust agreement did not contain a majority rule provision but instead required the unanimity of all trustees.
Subsection 75(2) of the Act will not apply to attribute income from property acquired by the trust with loan proceeds provided the loan is a bona fide loan and the property is not property which is held on conditions which would, on their own, cause the provisions of subsection 75(2) of the Act to apply. For example, should the loan proceeds be used to acquire a property from a parent, that property could be subject to the provisions of paragraph 75(2)(b) of the Act if the parents control the trust property as trustees or under the terms of the loan. However, it is our view that where a trust uses the proceeds of a loan obtained from a third party to subscribe for shares, subsection 75(2) of the Act should not apply to attribute the income derived from such shares provided that the shares are not directly or indirectly received from a person referred to in paragraph 75(2)(a) or (b) of the Act.
We confirm your views that where the provisions of subsection 75(2) of the Act were applicable at any time in respect of any property of a trust, subsection 107(4.1) of the Act would apply to a distribution of any property of the trust even though the trust was created before the enactment of subsection 107(4.1) of the Act.
The above comments are an expression of opinion only and, as explained in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.
We trust that these comments will be of assistance to you.
Yours truly,
for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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