30 November 1996 Ruling 9624583 - VARIATION OF TRUST TO ALLOW INCOME STREAMING

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:

Trust variation to allow streaming of source of income.

1.Does the variation cause a disposition & resettlement of the trust property?

2.Does the variation cause a disposition of the beneficiary's interests in the trust?

3.Does GAAR apply to streaming?

Position:

1.No.

2.No.

3.No.

Reasons:

1. Changes to trust do not vary the trust materially - not a major change to trust structure, beneficiaries or entitlement. See statement of principal issues for discussion.

2. No disposition of interest by beneficiary as beneficiary's entitlement remains the same just composition of entitlement differs.

3. GAAR does not apply- streaming of income in this case not a misuse or abuse; see GAAR submission dated March 12, 1997 & minutes of March 26, 1997--- minutes # 970302.

XXXXXXXXXX							962458
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of XXXXXXXXXX. We also acknowledge the additional information provided in your letters of XXXXXXXXXX.

We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested rulings are:

(i) being considered by an Office of Revenue Canada in connection with a return of income already filed,

(ii) the subject of a Notice of Objection, Notice of Appeal, or Statement of Claim filed, or

(iii)currently before the Tax Court of Canada, the Federal Court of Canada or the Supreme Court of Canada.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows.

I.FACTS

1. A Deed of Settlement was executed XXXXXXXXXX creating an irrevocable trust (the "XXXXXXXXXX Trust") for the benefit of XXXXXXXXXX. This settlement directs the Trustee, in part, to pay the annual net income of the trust to XXXXXXXXXX, in equal shares during their lifetime.

2. The XXXXXXXXXX Trust is a trust described in subsection 122(2) of the Income Tax Act (Canada) (the "Act").

3. XXXXXXXXXX (the "Deceased") died on XXXXXXXXXX. His Last Will and Testament (the "Will") was registered in the District Court of XXXXXXXXXX.

4. The Will provides for the establishment of a "Testamentary Trust" under which

XXXXXXXXXX

5. XXXXXXXXXX are residents of Canada.

6. XXXXXXXXXX is not a resident of Canada.

7. The primary sources of income of the Testamentary Trust and the XXXXXXXXXX Trust are interest and dividends.

8. Canadian resident parties to this ruling request file their tax returns at the XXXXXXXXXX Taxation Centre. Their tax account numbers follow:

XXXXXXXXXX

II. PROPOSED TRANSACTIONS

1. It is proposed that the terms of the XXXXXXXXXX Trust and the Testamentary Trust be varied by order of the Court of Queen's Bench of XXXXXXXXXX to permit the Trustees to allocate such part or parts of the income from a particular source to one or more beneficiaries, as the Trustees, in their discretion from time to time, determine advisable, provided that the proportionate share of the income of any beneficiary is not affected. More, specifically, the Testamentary Trust and the XXXXXXXXXX Trust would be varied to include two paragraphs, the substance of which will provide as follows:

XXXXXXXXXX

XXXXXXXXXX

The proposed variation of the Testamentary Trust and the XXXXXXXXXX Trust will confirm that the Trustees have the power to allocate different types of income to each beneficiary without changing the sharing ratio between the beneficiaries. A beneficiary's entitlement to amounts of income will remain unchanged after the proposed variation.

2. Each court order will state that the variation will not effect a revocation or resettlement of the respective trust and will not result in a disposition of any beneficiary's interest in the trust.

III.PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to provide the Trustee(s) with the discretion to allocate Canadian source income, particularly dividends from taxable Canadian corporations, to the Canadian resident beneficiaries.

IV. RULINGS

Provided that the preceding statements constitute complete and accurate disclosure of all the relevant facts, proposed transactions, and the purpose thereof, we confirm the following.

1. There will not be a resettlement of either the Testamentary Trust or the XXXXXXXXXX Trust.

2. There will not be a disposition, as defined in section 54 of the Act, of the property held by either the Testamentary Trust or the XXXXXXXXXX Trust.

3. There will not be a disposition of the income or capital interests of any beneficiary of either the Testamentary Trust or the XXXXXXXXXX Trust for purposes of subsections 106(2) and 107(1) and the definition of disposition in section 54 of the Act.

4. Subsections 56(2), 105(1) and 246(1) of the Act will not be applicable solely as a consequence of the proposed transactions.

5. Section 245 will not be applicable to redetermine the tax consequences set out in rulings provided above.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996 and is binding on Revenue Canada provided that the proposed variations to the trusts are completed by XXXXXXXXXX.

Yours truly,

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