12 May 1998 Internal T.I. 9802177 - REVOCABLE LIVING 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.

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: Whether paragraph (e) of the definition "disposition" in section 54 applies to a transfer of shares of a Canadian corporation owned by a US resident to a revocable living trust?

Position: No. FMV disposition.

Reasons: The trust has the characteristics of a revocable living trust

	May 12, 1998
	Saint-John Tax Services Office	M. Lemire
	International Audit	957-4363

Attention: David Murphy
7-980217

Tax implications with regard to the transfer of shares of a Canadian corporation owned by a US resident to a revocable living trust

We are writing in response to your memorandum of January 28, 1998 in which you request our comments concerning the application of paragraph (e) of the definition “disposition” in section 54 of the Income Tax Act (the “Act”).

Facts

1. The taxpayer is a resident of the United States.

2. The taxpayer is the sole shareholder of a Canadian corporation within the meaning assigned in subsection 89(1) of the Act.

3. The shares of the capital stock of the Canadian corporation are taxable Canadian property to the taxpayer pursuant to subparagraph 115(1)(b)(iii) of the Act.

4. The value of the shares of the capital stock of the corporation is derived principally from real property situated in Canada.

5. The taxpayer wants to transfer his shares of the capital stock of the Canadian corporation to a non-resident trust.

We have reviewed the copy of the trust agreement that you have forwarded to us. We understand that the taxpayer is the settlor and a trustee under the trust. We also understand that during his lifetime, the taxpayer is the sole income and capital beneficiary under the trust. The taxpayer also retains the ability to revoke, alter or amend the terms of the trust at any time. Finally, the terms of the trust provide for the vesting of the income and capital interests in the trust in other beneficiaries at the time of the taxpayer’s death.

It is our view that the trust is a revocable living trust that should be recognized for Canadian income tax purposes. Consequently, it is our opinion that the transfer of the shares by the taxpayer to the trust will constitute a full disposition (and not a disposition of the remainder interest only) for proceeds equal to fair market value of the shares pursuant to paragraph (c) of the definition “disposition” in section 54 and paragraph 69(1)(b) of the Act.

For your information a copy of this letter will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613-957-0682. The severed copy will be sent to you for delivery to the client.

We trust our comments will be of assistance to you.

Yours truly,

Theresa Murphy
Chief
Trust Section
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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