10 July 1996 External T.I. 9516205 - : Spousal Trust and U.S. Treaty

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 revocable living trust established by a person resident in the U.S. a trust described in subsection 70(6) of the ITA for the purposes of paragraph 5 of Article XXIX B of the CDA/US Income Tax Convention - 3rd Protocol.

Position:

No.

Reasons:

A trust described in subsection 70(6) must be established by a t/p's will. Since a revocable living trust is established inter vivos and not by a t/p's will, it is not a trust described in subsection 70(6) for the purposes of paragraph 5 of Article XXIX B.

XXXXXXXXXX

Attention: XXXXXXXXXX

Dear Sirs:

Re: Article XXIX B Canada/United States Income Tax Convention - Third Protocol

This in reply to your letter of June 8, 1995 concerning the above noted subject. We apologize for the delay in responding.

Your letter describes the following scenario:

1. Mr. A (a Canadian citizen who is now resident in the United States) is considering establishing a revocable living trust (the "Trust") for the purposes of avoiding probate.

2. Mr. A intends to settle the bulk of his world estate (including significant business assets in Canada) in the Trust. Under the terms of the Trust Mr. A would be the sole trustee. While Mr. A is alive, he may at any time, and from time to time, revoke the Trust and call for the payment of all the income or capital of the Trust. Upon his death, Mr. A's spouse would be entitled to the income of the Trust during her lifetime and, on her death, the remaining capital would be paid to his children.

3. Mr. A's Last Will and Testament would also provide that any property (that is, property not already settled in the Trust) is to be distributed to the Trust.

You have requested our opinion as to whether the trust in the above scenario would be a trust described in subsection 70(6) of the Income Tax Act for the purposes of paragraph 5 of Article XXIX B of the Canada/United States Income Tax Convention - Third Protocol.

A trust, as described in subsection 70(6), must, among other things, be a trust created by a taxpayer's will. Since the trust in this scenario was created inter vivos, and not by the taxpayer's will, it is our view that it would not be a trust described in subsection 70(6) of the Act and paragraph 5 of Article XXIX B of the Convention would not be applicable in these circumstances.

We would add that it is also our view that a revocable living trust would be recognized for income tax purposes at the time that legal title to property is transferred to it and that the transfer of such property would be a disposition of the property at its full fair market value. In this regard, a copy of IC 72-17R4, which outlines the procedures to be followed when a non-resident disposes of taxable Canadian property, has been enclosed.

We trust that our comments will be of assistance to you.

Yours truly

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch