27 March 1998 Internal T.I. 9802647 - Unknown Estate Property

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:

Several years after an Estate obtained a clearance certificate, the property of the Estate was distributed to the beneficiaries, and a final T3 return was filed (1990), additional property (bank accounts) of the estate was discovered. Is the Estate required to file an amended 1990 T3 return and T3 returns (1991 to 1997) to report the interest income earned in those years?

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

Once an estate has been administered, any additional property of the estate that is discovered can be considered to belong to the beneficiaries and not the estate because the beneficiaries have an enforceable right in or to any property of the estate. (See 950485) Therefore, no additional T3 returns for the estate are required. The income from such property would also belong to beneficiaries. In this case, since beneficiaries are all tax-exempt organizations such income would not be subject to tax.

DATE March 27, 1998

((							((
	TO	John Rose					FROM Trusts Section
	A		Assistant Director			DE	G.W. Keable
		Client Services Division		(613) 957-2046
		Toronto East TSO

			Attention: Charles Carr
((						   	((	FILE    	980264

									DOSSIER

SUBJECT: XXXXXXXXXX

OBJET:

This is in response to the round trip memorandum of January 27, 1998, requesting our views on the income tax consequences related to the discovery of additional property of the above named Estate.

Our understanding of the facts are as follows:

XXXXXXXXXX.

TSO's Position

You are of the view that Estate should file an amended 1990 T3 Return and T3 Returns for 1991 to 1997 inclusive to reflect the income earned in those years.

Executor's Position

The Executor of the Estate is of the opinion that, since all of the beneficiaries are charitable organizations which are not subject to tax, there is no tax payable on these additional funds, consequently, there is no need for the Estate to file any additional T3 Returns.

Our Comments

Even though the Executor was not aware of the existence of the bank accounts at the time the Estate was administered (debts paid, clearance certificate received, final T3 Return filed and known property distributed to the residual beneficiaries), it can be argued that these bank accounts were the beneficiaries' property. That is, such property will generally be considered to belong to the residual beneficiaries because, from the time the Estate is administered, they have an enforceable right in or to any property of the Estate. Furthermore, any income earned on such property would be the beneficiaries' income and not the income of the Estate. However, since all of the beneficiaries in this case are tax-exempt organizations, the interest earned on these bank accounts would not be subject to tax. We would also note that based on our review of the information provided there is no indication that the parties involved have acted in an improper manner (i.e., there is no indication of negligence or misrepresentation). Therefore, in this particular case, we would agree with the Executor's submission that there is no need for the Estate to file any additional T3 Returns.

The documents forwarded to us for review are attached. Should you have any questions concerning these comments please contact George Keable.

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

Attach.