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:
Benefits to life tenant out of a trust.
Position TAKEN:
Benefits are included in income pursuant to subsections 105(1) and 105(2).
Reasons FOR POSITION TAKEN:
Law. 951461
XXXXXXXXXX T. Murphy
(613) 957-8953
July 7, 1995
Dear Sir:
Re: Technical Interpretation Requested on Behalf of XXXXXXXXXX
This is in reply to your letter of May 19, 1995 concerning the application of subsection 105(2) of the Income Tax Act (the "Act") to XXXXXXXXXX regarding money spent from a "house fund" to maintain a residence for her use, occupation and enjoyment during her lifetime. The "house fund" in the amount of $XXXXXXXXXX was established in 1989 by the will of her deceased husband. The income thereof and capital thereof as may be required from time to time is to be used to pay all realty taxes, homeowners insurance, grass cutting, leaf raking, snow removal, eavestrough cleaning, window washing, painting, decorating, repairs to the building and fixtures as needed for her enjoyment. The "house fund" would also be used to replace fixtures incidental to the residence. The intent of the "house fund" is to relieve XXXXXXXXXX from any expenses whatsoever in the operation and occupation of the residence. Upon her death or remarriage any balance remaining in the "house fund" forms part of the rest and residue of her deceased husband's estate.
As this is an actual situation, we cannot comment on it specifically. Requests for confirmation of the tax consequences of this type of situation are handled by the local tax services office. We offer the following general comments concerning benefits from or under a trust to a life tenant for your consideration. All references herein to sections or components thereof are references to the Act.
Subsection 105(2) provides that amounts paid by a trust out of the income of the trust for the upkeep, maintenance and taxes of a property required to be maintained for the use of a life tenant are included in the income of the life tenant for the taxation year in which they are paid.
Where amounts are paid out of the capital of the trust for upkeep, maintenance or taxes, such amounts would be included in the income of the life tenant under subsection 105(1). As indicated in response to question 69 of the 1988 Revenue Canada Round Table, Revenue Canada would not generally seek to assess a subsection 105(1) benefit to a life tenant for the rent-free use of a property that would be a principal residence of the life tenant if the life tenant owned the property.
We trust our comments will be of assistance to you.
Yours truly,
R.S. Biscaro
Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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