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 would be the tax consequences of a variation to the terms of a trust which would result in a change of settlor for trust law purposes?
Position: No comments will be provided except in the context of an advance tax ruling.
Reasons: We have never dealt with this issue before. Such a change would have an impact on the trust’s ability to make preferred beneficiary elections. We are concerned with retroactive tax planning.
XXXXXXXXXX M. Lemire
5-981949
Attention: XXXXXXXXXX
March 19, 1999
Dear Sirs:
Re: Settlement of Family Trusts
This is in reply to your letter of July 21, 1998 regarding the settlement of two family trusts. Your letter has been forwarded to us by the Vancouver Tax Services Office. We apologize for the delay in response to your letter.
We understand from your letter that two trusts (Trust A and Trust B) were established in 1994. Trust A was established for the benefit of Mr. A’s children while Trust B was established for the benefit of Mr. B’s children. We understand that the original intention was that Mr. A would be the settlor of Trust A and Mr. B would be the settlor of Trust B for trust law purposes. However, we understand that, as a result of miscommunications between Mr. A’s and Mr. B’s legal advisors and accountants, the trust agreement for Trust A sets out that it was settled by Mr. B while the trust agreement for Trust B sets out that it was settled by Mr. A. Finally, we understand that Mr. A also contributed most of his wealth to Trust A while Mr. B contributed some of his wealth to Trust B.
Your letter also indicates that modifications to the terms of Trust A and Trust B can be made to reflect Mr. A’s and Mr. B’s original intentions so that Mr. A was the settlor of Trust A and Mr. B was the settlor of Trust B for trust law purposes. You are requesting our views as to what would be the Department’s reaction to such a variation to the terms of the trusts.
We are not aware of any precedents dealing with this particular issue. Consequently, we are not prepared to provide any comments with respect to your particular situation except in the context of an advance tax ruling request following the procedures outlined in Information Circular 70-6R3 dated December 30, 1996. Nevertheless, if we had to consider this issue in the context of an advance tax ruling, we would be concerned with retroactive tax planning.
Yours truly,
Theresa Murphy
Manager
Trusts Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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