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.
spousal trust, whether a general provision permitting the
trustees to make loans will taint the trust or whether it is
only the ability to make loans at less than commercial rates
lending or investment of trust property to a non-spouse on
"commercial" terms does not taint the spousal trust but if
the terms of the trust permit the lending of trust property
to a person other than the spouse on terms more favourable
than that which would otherwise be available to that person
commercially, the trust would not be a spousal trust, even
if the trustees did not make such a loan.
one of the conditions in 70(6)(b) & 73(1)(c) is that no one
other than the spouse may be permitted under the terms of
the trust to receive or obtain the use of the income or
capital of the trust. Whether trust property is invested in
a financial institution, used in a business, or loaned to a
third party, someone other than the spouse "uses" the
property .... but for a fee. Such use does not result in
encroachment of the trust's income or capital nor does the
user obtain a benefit - thus, it is our view, as supported
by the case of Peardon v MNR, 86 DTC 1045, that use of trust
property acquired thru a commercially-based transaction
(with regard to terms and conditions under which property
was lent, invested or rented) does not taint a spousal
November 14, 1996
Re: Spousal Trusts
We are replying to your letter of August 14, 1996, in which you ask whether a general lending power granted to the trustees in a trust deed would taint the trust as a spousal trust for the purposes of subsections 70(6) and 73(1) of the Act.
In particular, you note that one of the conditions which must be met if a trust is to qualify as a spousal trust is that no person other than the spouse may obtain the use of the income or capital of the trust before the spouse's death. Recognizing that the nature of a loan involves the use of the property so lent by the borrower, you ask whether we interpret these provisions to preclude a spousal trust from making any loan or just from making a loan which does not bear a commercial rate of interest.
In our opinion a general provision in the trust deed covering the lending of money which would be made on commercial terms (including a market rate of interest, appropriate security and a reasonable repayment schedule) would not in and by itself prevent the trust from qualifying as a spousal trust. However, when the terms of a trust are such that a loan can be made on non-commercial terms to anyone other than the spouse, the trust will not qualify as a spousal trust, even though no actual loan is made.
We trust our comments will be of assistance to you.
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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