17 November 1989 Income Tax Severed Letter AC58994 - Meaning of Personal Trust

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.

19(1)               5-8994
                                         W.C. Harding
                                         (613) 957-3499

November 17, 1989

Dears Sirs:

This is in reply to your letter of October 31, 1989 wherein you requested our opinion of the definition of a "personal trust" under subsection 248(1) of the Income Tax Act (the "Act") as it applies to the following hypothetical situations:

Situation 1

A settlor settles a trust which gives the trustees discretion as to the distribution of income and capital and in which a certain individual (the "Contributor") is named as a beneficiary. The Contributor later contributes property to the trust without receiving any additional beneficial interest in the trust.

Situation 2

A settlor settles a trust which gives the trustees discretion as to the distribution of income and capital and in which the settlor is named as a beneficiary. The settlor later contributes more property to the trust without receiving any additional beneficial interest in the trust.

We concur that, in Situation 1, the acquisition of a beneficial interest in the trust by the Contributor at the time of settlement would not disqualify the trust as a personal trust, because there was no consideration given by the Contributor for this interest in the trust. The later contribution of property to the trust by the Contributor would not result in the trust being disqualified as a personal trust, if the Contributor did not acquire any interest in the trust by virtue of this later contribution.

We also concur that, in Situation 2, the acquisition of a beneficial interest in the trust by the settlor at the time of settlement would not disqualify the trust as a personal trust, because the definition of a personal trust includes a provision which deems the settlor to have acquired his beneficial interest for no consideration. The later contribution trust, if the settlor did not acquire any interest in the trust by virtue of this later contribution.

In both situations however, it is a question of fact as to whether or not the later contributions were made in respect of or for the purpose of acquiring the beneficial interest held previous to the contribution.

We trust these comments are satisfactory to your needs.

Yours truly, for Director Financial Industries Division Ruling Directorate