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: Constructive trusts and the issue of retroactivity
Position: No retroactivity. FMV disposition at the time of the court order.
Reasons: XXXXXXXXXX
October 21, 1998
Saint John Tax Services Office Headquarters
Trusts Section
Attention: Gavin Ross M. Lemire
Tax Avoidance Section (613) 957-4363
981252
Constructive Trusts
This is in reply to your letter of May 14, 1998 in which you requested general comments on the Department's position on constructive trusts and retroactivity. We apologize for the delay in responding to your request.
Generally, a constructive trust is a trust imposed by a court as a means of forcing the legal owner of the property to transfer the property to its rightful owner. It is imposed by operation of law irrespective of the intention of the parties. A constructive trust is not a declaration that a trust exists but a remedy by the court to rectify unjust enrichment. Constructive trusts have been used by courts in resolving both matrimonial and commercial disputes.
The Department's current position on constructive trusts is that a constructive trust will be a trust for income tax purposes that would be subject to the application of all relevant provisions of the Act. The trust would be a personal trust as defined in subsection 248(1) of the Act. It is also the Department's current view that a constructive trust would not have retroactive effect for income tax purposes and the existence of such a trust would not be recognized until the time of the court order. Therefore, in such case where a constructive trust is recognized for income tax purposes, the legal owner of the property subject to the dispute would generally be viewed as having disposed of the property at its fair market value at the time of the court order in favour of the rightful owner of the property.
We trust this will be of assistance to you.
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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