13 August 1997 External T.I. 9701955 - TRANSFER OF A PROPERTY TO A 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.

PRINCIPAL ISSUE:

Would a transfer of shares of a corporation to a trust constitute a "disposition", as that term is defined in section 54 of the Income Tax Act (the "Act"), of the entire property?

Position:

The transfer of property to the new trust would constitute a disposition for proceeds equal to the fair market value of the property at the time of the transfer.

Reasons:

Pursuant to paragraph (c) of the definition of "disposition" in section 54 and paragraph 69(1)(b) of the Act.

XXXXXXXXXX 5-970195

Attention: XXXXXXXXXX

August 13, 1997

Dear Sirs\Madams:

Re: Transfer of property to a trust

This is in reply to your letter dated January 21, 1997 in which you requested our views as to whether a transfer of shares of a corporation to a trust would constitute a "disposition", as that term is defined in section 54 of the Income Tax Act (the "Act"), of the entire property. We apologize for the delay in responding to your request.

As explained in Information Circular 70-6R3, it is not the Department's practice to comment on proposed transactions other than in the form of an advance income tax ruling. Taxpayers seriously contemplating a proposed transaction are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve completed transactions, you should submit all relevant facts and any other documentation to the appropriate Tax Services Office for their views. We are therefore not in a position to give a definitive response to your enquiry. However, we can offer you the following general comments which may be of assistance although, in certain circumstances, they may not be appropriate to your specific situation.

In the hypothetical situation described in your letter, it is assumed that certain persons deposited shares of a corporation to a bare trust and you provided a description of the characteristics of that trust.

As we do not have all the relevant documentation, we cannot confirm that the original trust is a bare trust. We generally view a trust under common law to be a bare trust when:

-the trustee has no significant powers or responsibilities, and can take no action without instructions from the settlor;

-the trustee's only function is to hold legal title to the property; and

-the settlor is the sole beneficiary and can cause the property to revert to him or her at any time.

Assuming that the original trust is a bare trust, we agree with your view that where a property is held by a bare trust, the transferor/settlor is the owner of the property for all purposes of the Act.

In the hypothetical situation described in your letter, the shares held in the "bare trust" would be transferred to a new trust and, in our view, the transfer of property to this new trust would constitute a disposition for proceeds equal to the fair market value of the property at the time of the transfer pursuant to paragraph (c) of the definition of "disposition" in section 54 and paragraph 69(1)(b) of the Act.

As indicated in paragraph 22 of Information Circular 70-6R3 dated December 31, 1996, this opinion is not a ruling and accordingly, is not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

Marc Vanasse
Acting Section Chief
Resources, Partnerships and Trusts Section
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch