7 May 1990 Income Tax Severed Letter RRRR280 - Whether a will creates a 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.

Ottawa Taxation Centre Financial Industries Division
Attention: Mr. Jim Doherty M. Shea-DesRosiers
Chief of Assessing (613) 957-8953
Non-Resident Trusts Section

5- 9564
• • Whether the Will creates a Trust - Whether Subsection 70(5) of the Income Tax tax applies - Whether the Trust Agreement is a "trust" for the purposes of the Income Tax Act

We have received a request from XXX concerning the application of subsection 104(1) of the Income Tax Act to the above-mentioned estate and the Trust Agreement as well as the application of subsection 70(5) of the Income Tax Act to the provisional heir upon his death. We attach XXX letter of February 8, 1990 with the documents he had enclosed with his letter.

We have prepared for your information and assistance this Memorandum wherein we express our opinion on the questions raised by XXX We are advising XXX that a reply to his queries will come from the Ottawa Taxation Centre, Non-Resident Trusts Section. Should you wish to discuss the questions raised by XXX after having received our Memorandum, you may contact Mrs. Maureen Shea-DesRosiers at 957-3494.

While the Trust Agreement under German civil law is a form of contract which, as stated in XXX letter, gives rise to an agency relationship, it is our opinion that, as far as the Department is concerned, the Trust Agreement must be considered in light of the provisions of the Income Tax Act.

COMMENT

It is our opinion that the Trust Agreement itself is a "trust" within the meaning of subsection 104(1) of the Income Tax Act (the "Act"). Although under German civil law said Agreement is not considered a trust, for the purposes of the Act, it is to be treated as a trust since it comes within the provisions of the Act which deal with trusts.

Section 104 to 108 of the Act apply to both trust and estates. If a will includes a substitution that is not a "trust" strictly speaking, it is nevertheless, with the other testamentary provisions, an estate as provided for in subsection 104(1) of the Act and therefore constitutes a trust within the meaning attributed to it in the Act. The institute, like all legatee or heir in an estate, is a "beneficiary" within the meaning of paragraph 108(1)(b) of the Act and possesses an income interest within the meaning of paragraph 108(1)(e) of the Act, as well as a capital interest within the meaning of paragraph 108(1)(c) of the Act (whether or not the institute has the right to dispose of the substituted assets). The institute is therefore in the same situations as all legatees or heirs, since he is by definition a "beneficiary" of the "testamentary trust" of the estate that includes the legacy in the institute.

It follows therefore that the provisions of subdivision K of Division B of Part I of the Act, and consequently subsection 104(4) of the Act, would apply to the taxable Canadian property forming part of XXX

It is our opinion that XXX will be deemed, immediately before his death, to have disposed of his interest in the taxable Canadian property held in the estate according to the provisions of subsection 70(5) of the Act.

We trust the above comments will be of assistance to you. We trust our comments will be of assistance to you.

Chief
Financial Industries Division
Rulings Directorate