9 September 1999 External T.I. 9911585 - OWNERSHIP OF 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: To determine the beneficial ownership of a property whose title was put in the name of the taxpayer's mother "in trust".

Position: A general discussion on the requirements for a trust and bare trusts.

Reasons: The beneficial ownership of a property is a question of fact.

XXXXXXXXXX							991158
J. E.	Grisé
September 9, 1999
Dear XXXXXXXXXX

Re: Ownership of Property

This is in reply to your letter of April 28, 1999, requesting a tax ruling pertaining to proposed transactions relating to property identified as the "Home Farm" which includes a farm house, several hundred acres of farm lands and several farm buildings. This is also further to your telephone conversation with Mr. Jacques Grisé on August 8, 1999. We apologize for the delay.

As indicated in paragraph 2 of Information Circular 70-6R3, Advance Income Tax Rulings, an advance income tax ruling is a written statement given by this Directorate to a taxpayer stating how the Department will interpret and apply specific provisions of existing Canadian income tax law to a definite transaction or transactions which the taxpayer is contemplating. The taxpayer or the taxpayer's representative is required to provide a complete description of facts on which the Directorate can establish the correct interpretation and application of specific provisions that could relate to such facts. One of the crucial facts required to respond to the questions you have posed is the beneficial ownership of the Home Farm. Since the fact of beneficial ownership has not been established, we are not in a position to issue an advance income tax ruling on this matter. However, as discussed with Mr. Grisé, we are providing you with general comments on the ownership of property.

In the situation presented in your letter, the taxpayer transferred the Home Farm in 1970 by way of a deed of conveyance to his mother "in trust". At all times before and after the transfer, the taxpayer has lived in the farm house situated on the Home Farm with his spouse and children. Throughout all that time, the taxpayer continued to use the farm land and buildings of the Home Farm as part of his larger farming operation. The income from the farming operation was reported as the taxpayer's income, Although there is no written trust declaration, the taxpayer and his mother maintain that the Home Farm was held in trust for the benefit of the taxpayer's children. Income tax returns have not been filed for a trust relating to the ownership of the Home Farm.

As indicated in paragraphs 2 and 3 of Interpretation Bulletin IT437R, Ownership of Property (Principal Residence), in the common law jurisdictions, two forms of property ownership are recognized -legal and beneficial. Normally "legal ownership" exists when title is transferred to, recorded in registered in or otherwise carried in the name of a person. Legal owners are generally entitled to enforce their ownership rights against all other persons. One person's legal ownership of a property may, however, be subject to another person's beneficial ownership of that property. The term "beneficial ownership" is used to describe the type of ownership of a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership. A person who has beneficial ownership rights but not legal ownership can enforce those rights against the holder of the legal title.

A change in the legal ownership of a property without any change in the beneficial ownership thereof will not result in the disposition of the property. Thus, it is important to establish the beneficial ownership of the Home Farm to determine the income tax implication to any transfer of the property.

The existence of a trust is determined by the relationship between the settlor, the trustees and the beneficiaries. The relationship may or may not be defined by a formal written document but is codified by any applicable trust legislation and common law. It is accepted at law that a trust cannot be established unless three certainties are present. That is, the attempt to establish a trust will fail unless it is certain that the settlor intended to bring a trust relationship into existence and both the property and the beneficiaries or other objects of the trust are described with sufficient certainty. Whether the three certainties are present or not is a question of fact and particular to the circumstances of each case, however given the requirement of these three certainties, a written trust document would serve as the best evidence of their existence and would resolve any ambiguities which may otherwise arise.

Where a property is held by a bare trust, we will ignore the trust for income tax purposes and will consider the transferor or settlor to be the owner of the property for all purposes of the Act. We generally view a trust under common law to be a bare trust when:

• the trustee has no significant powers or responsibilities, and can take no action without instructions from the settlor;
• the trustee's only function is to hold legal title to the property; and
• the settlor is the sole beneficiary and can cause the property to revert to him or her at any time.

In the event that the Home Farm is beneficially owned by the taxpayer, the provisions of subsection 73(3) of the Income Tax Act may apply to reduce or eliminate the tax implication on the sale or transfer of the Home Farm to the taxpayer's child or children. In this respect, please refer to Interpretation Bulletin IT-268R4, Inter Vivos Transfer of Farm Property to child which may be obtained on our internet site at: http://www.rc.gc.ca.

We hope our comments are helpful.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch