19 November 1996 External T.I. 9613135 - medical expenses reimbursement within testamentary 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.

                                                      5-961313
XXXXXXXXXX                                      (613) 957-8953

Attention: XXXXXXXXXX

November 19, 1996

Dear Sir\Madam:

Re: Medical Expenses Reimbursement within Testamentary Trust

This is in response to your letter dated April 11, 1996 wherein you requested our opinion as to whether reimbursements of medical expenses by a health plan will taint a testamentary trust. We apologize for the delay in responding to your request.

In your letter you mention that encroachments are made on the capital of a trust to pay for medical expenses of specific beneficiaries. At various times during the year, applications are made to a health plan for reimbursement to the trust for a portion of those expenses. In a case of a testamentary trust, you question whether such a reimbursement is considered a contribution to the trust and, therefore, whether it taints the trust under subsection 108(1) of the Income Tax Act.

This subsection defines a testamentary trust which reads, in part, as follows:

Testamentary trust in a taxation year means a trust or estate that arose on and as a consequence of the death of an individual (...) other than

(a)(...)

(b)a trust created after November 1981 if, before the end of the taxation year, property has been contributed to the trust otherwise than by an individual on and after the individual's death and as a consequence thereof;

(c) (...).

In our opinion, the reimbursement described in your letter is property contributed to the trust. Therefore, such a trust will not be a testamentary trust under subsection 108(1) of the Act.

Yours truly,

Marc Vanasse
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch