8 May 1998 Internal T.I. 9731797 - TAINTED SPOUSAL TRUST - VARIATION

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:

1) Was the Department’s position contained in paragraph 5 of IT-305R3 carried forward into IT-305R4.

2) Can a trust created by the will of a taxpayer be varied so that the trust will qualify as a spousal trust pursuant to subsection 70(6).

Position TAKEN:

1) Yes

2) No

Reasons FOR POSITION TAKEN:

1) Paragraph 12 of IT-305R4 sets out the position formerly contained in paragraph 5 of IT-305R3. It is the Department’s position that a trust has to qualify as a spouse trust under subsection 70(6) by the original terms of the t/p’s will - any variations to such terms will not bring a trust within the wording of subsection 70(6). The only exceptions to this position are those provided by subsection 248(9.1) (former subsection 70(6.1)). It should be noted that this position was also contained in former paragraph 4 of IT-305R2, IT-305R and IT-305.

2) As indicated in paragraph 12 of IT-305R4 a tainted spousal trust cannot be purified by obtaining a variation under variation of trusts legislation.

REVENUE CANADA			REVENU CANADA						T2001
MEMORANDUM		NOTE DE SERVICE
                                                                                                                                    DATE  May 8, 1998
??							??
	TO	  Toronto Centre TSO				FROM 	Trusts Section
	A	  Verification and Enforcement Division		    DE	G.W. Keable
		   Section 444-12						(613) 957-2046

		  Attention: Naomi Tsuji
A?						   	??		FILE    	 973179
								         DOSSIER

SUBJECT: Tainted Spousal Trust - Variation of Trust
OBJET:

This is in response to your correspondence of December 2, 1997 wherein you requested clarification on whether or not the Department’s position concerning variations obtained under variation of trusts legislation which was formerly contained in paragraph 5 of IT-305R3 had been carried forward into IT-305R4, Testamentary Spouse Trusts, dated October 30, 1996.

The Department’s longstanding position concerning variations formerly contained in paragraph 5 of IT-305R3 is now set out in paragraph 12 of IT-305R4. In this regard, we would note that a trust must qualify as a spouse trust under the original terms of the will and any changes to those terms by means of a variation obtained under variation of trusts legislation will not bring the trust within the wording of subsection 70(6). Paragraph 12 of the revised bulletin also reflects the amendments to the Act that added subsection 248(9.1) and repealed former subsection 70(6.1). New subsection 248(9.1) contains the special rule concerning trusts created by a court order, in relation to a taxpayer’s estate, made under a law of a province that provides for the relief or support of dependants which was contained in former subsection 70(6.1).

With regard to the fact situation described in the November 18, 1997 submission by the law firm of XXXXXXXXXX, based on the information submitted, we agree with XXXXXXXXXX conclusion that the trust in question does not qualify as a spouse trust as described in subsection 70(6) and (6.1). As indicated in paragraph 12 of IT-305R4, a variation obtained under variation of trust legislation may not be used to purify a tainted spouse trust so that the trust would be subject to the rollover provisions of subsection 70(6) and (6.1). Similarly, we are also of the view that an agreement or undertaking by the trustees may not be used to purify a tainted spousal trust.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.

Should you have any questions concerning these comments please contact George Keable.

T. Murphy
Section Chief
Trusts Section
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch