29 November 1996 External T.I. 9632045 - VOTING TRUST, IS DISPOSITION RECOGNIZED ON TRANSFER

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:

whether a disposition is recognized for tax purposes on
transfer of shares to a voting trust

Position:

question of fact, need trust indenture to determine whether
beneficial ownership has transferred to trust

Reasons:

paragraph (e) of def'n of disposition in section 54 exempts
legal transfers without a corres change in beneficial
ownership if a bare trust, the trust is not recognized for
tax purposes if not a bare trust but, like a protective
trust, no change in beneficial ownership, trust is
recognized for all purposes but no disposition of property
on transfer

A. Humenuk
XXXXXXXXXX 963204

Attention: XXXXXXXXXX

November 29, 1996

Dear Sirs:

Re: Voting Trusts

We are replying to your letter of September 20, 1996 in which you ask whether the transfer of shares from an employee who is resident in Canada to a voting trust which is resident in the United States will be considered to be a disposition of the shares for Canadian tax purposes.

For the purpose of our response, we assume that the property to be held by the voting trust would be capital property of the individuals who are settlors and beneficiaries of that trust. A transfer of property which creates a change in the legal ownership of property without any change in beneficial ownership is specifically excluded from the definition of a "disposition" found in section 54 of the Income Tax Act (the Act). Whether or not a change of beneficial ownership occurs upon the transfer of property to a voting trust is a question of fact which can only be determined upon review of the specific trust indenture governing the particular trust.

You may wish to refer to the attached copy of Income Tax Technical News #7 (under the headings "Revocable Living Trusts", "Protective Trusts" and "Bare Trusts") for a general indication of the criteria considered by the Department in determining whether a change in beneficial ownership has occurred.

We trust our comments will be of assistance to you.

Yours truly,

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