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.
XXXXXXXXXX 953252
February 7, 1996
Dear Sir:
Re: 1995 Federal Budget Proposals - Elimination of the Election to Defer the "21-Year Rule"
This is in reply to your letter of December 6, 1995, concerning the above.
Subsection 104(5.3) of the Income Tax Act (the "Act") currently permits a trust (other than a "post-71 spousal trust") to elect not to have the "21-year rule" apply provided that there is an exempt beneficiary under the trust on the day that would otherwise be the deemed disposition day. If a trust made this election the deemed disposition day would generally be deferred to the first day of the first taxation year following the death of the last surviving exempt beneficiary. Draft legislation released by the Department of Finance to implement the 1995 federal budget proposals (last amended December 1995) will no longer permit a trust to elect to postpone deemed disposition days that occur after 1998 and will generally require a trust that previously made the election to recognize a deemed disposition of its assets at fair market value on January 1, 1999.
Paragraph (g) of the definition of "trust" in subsection 108(1) of the Act provides that the "21-year rule" is not applicable to a trust (other than a "post-71 spousal trust", a trust that has made an election under subsection 104(5.3), or a trust that elects that paragraph (g) not apply) all interests in which have vested indefeasibly and no interests in which may become effective in the future.
In response to your first question, no proposed changes were announced by the Department of Finance with respect to paragraph (g) noted above.
In response to your second question, upon the death of a beneficiary owning a capital interest in a non-discretionary trust, there would be a deemed disposition of that capital interest immediately before the beneficiary's death for proceeds equal to the fair market value of the interest pursuant to paragraph 70(5)(a) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
T. Murphy
for Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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