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: What is the effect of the phrase "at any time after 1971" found in 104(4)(a)(ii)? I.e., can a tainted inter vivos trust be purified at any time (even after 31/12/71) up to the 21st anniversary?
Position: It is possible for an inter vivos trust to meet the criteria in 104(4)(a)(iii) and (iv) at some time after 1971 even though those criteria were not met at January 1, 1972. In order to avoid the deemed disposition on the 21st anniversary of the creation of the trust, the stated criteria would have to be met before that time.
Reasons: Unlike subparagraphs (a)(i) and (i.1) which require a trust to qualify from the outset, subparagraph (a)(ii) contemplates that a trust may not qualify at either its creation date or at January 1, 1972 and yet may subsequently qualify. The time to consider whether a trust qualifies is "at ANY time after 1971," not "at ALL times after 1971."
On a strict reading of subparagraphs (ii) to (iv), it would appear that the only fact situation which could be purified would be one in which the trustees have the right to exercise discretion in determining the amount of income to be distributed to the spouse. Provided that no one else was entitled to receive income of the trust, the trust could be purified by changing the terms of the trust to substitute the spouse's entitlement in place of the trustee's discretion. However, it is felt that the words of (ii) were not intended to be restricted to such a unique situation.
The words "at any time" mean some point in time, and are distinguishable from words such as "throughout any period", which require the entire period to be considered. The use of the words "at any time" for inter vivos trusts described in 104(4)(a)(ii) can be contrasted with the use of the words "throughout the period" in the definition of pre-1972 trusts which is relevant to 104(4)(a.1), thus indicating different tests.
On the 21st anniversary of the creation of a trust, one would have to determine whether the trust met the conditions at or before that time. If not, it is not reasonable that a subsequent qualification would have retroactive effect. For instance, a trust could be established when the settlor and spouse were very young and they could live to the age of, say, 90 years. If the settlor then died leaving his spouse as sole income beneficiary of the trust, the scheme of the Act does not provide for a retroactive adjustment to a time of perhaps 50 years earlier.
XXXXXXXXXX J.D. Brooks
973390
Attention: XXXXXXXXXX
October 26, 1998
Dear Sirs:
This is in reply to your letter of December 17, 1997 in which you requested our views on the interpretation of subparagraph 104(4)(a)(ii) of the Income Tax Act in a hypothetical fact scenario. Your concern is whether it is possible for the trust described in that scenario to qualify for the potential deferral of the time of the deemed disposition until the death of the spouse.
In the hypothetical scenario, a person settles an inter vivos trust after 1971 which provides that, on the settlor's death, the settlor's spouse will be entitled to receive all of the income of the trust that arises after the settlor's death and before the spouse's death, and no person except the spouse can, after the settlor's death and before the spouse's death, receive or otherwise obtain the use of any of the income or capital of the trust. While the settlor is alive, the settlor has an entitlement to receive all of the income and capital of the trust.
Although you have asked for a technical interpretation, the situation presented appears to be an actual fact situation. Should this situation involve a proposed transaction, you may wish to submit all relevant facts and proposed transactions for a binding advance income tax ruling. However, should this situation involve actual taxpayers and completed transactions you may wish to submit all relevant facts and documentation (including identification numbers) to the appropriate Tax Services Office for their comments. We are, however, prepared to provide some general comments.
Pursuant to paragraph 104(4)(a) of the Income Tax Act, an inter vivos trust created after 1971 will be deemed to have disposed of each property described in the preamble of subsection 104(4) on the day on which the settlor's spouse dies rather than on the 21st anniversary of the creation of the trust, provided that the conditions in subparagraphs (iii) and (iv) are met "at any time after 1971" and before the 21st anniversary. The words "at any time after 1971" contemplate that an inter vivos trust may be able to meet the criteria of those two subparagraphs at some time after December 31, 1971 even if it did not meet the criteria on January 1, 1972. It is our view that, where the spouse is entitled at a particular time to receive all of the income of the trust that arises after that time and before the spouse's death, the criterion in subparagraph (iii) will be met at that time. Similarly, in considering the criteria in subparagraph (iv) at that particular time, it is our view that, where no person except the spouse could, after that time and before the spouse's death, receive or otherwise obtain the use of any of the capital of the trust or income of the trust that arises after that time, those criteria will be met.
Thus, in the hypothetical scenario you described, the inter vivos trust could qualify under paragraph 104(4)(a) if the settlor dies prior to the 21st anniversary of the creation of the trust.
As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, this opinion is not an advance income tax ruling and consequently, is not binding on Revenue Canada.
We trust our comments will be of assistance to you.
Yours truly,
T. Murphy
Manager
Trusts Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
??
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1998
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1998
Email this Content