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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether a proposed disclaimer by the spouse of a spouse trust, of an entitlement to capital of the trust is effective so as to enable a residual beneficiary, which is a charitable organization, to be considered to have received an equitable interest in the trust that can be valued for purposes of subsection 118.1(5) of the Act?
Position: Yes.
Reasons: Based on the facts. Pursuant to a Disclaimer Agreement, the disclaimer will be irrevocable by the spouse, and the trustees will undertake to not exercise their authority to make capital of the trust available to the spouse. The spouse will also obtain independent legal advice on the effect of such disclaimer prior to signing it, and the lawyer providing the advice will provide a certificate that such advice has been provided. The charitable organization is aware of Mrs. A's intention to enter into the Disclaimer Agreement.
XXXXXXXXXX 2002-011782
Dear XXXXXXXXXX:
XXXXXXXXXX, 2002
Re: XXXXXXXXXX
Advance Income Tax Ruling___________
This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the XXXXXXXXXX (the Estate). We also acknowledge your letter dated XXXXXXXXXX.
To the best of your knowledge and that of the taxpayers involved, none of the issues involved in this ruling:
a) is in an earlier return of the Estate or a related person;
b) is being considered by a tax services office or a taxation centre in connection with a previously filed income tax return of the Estate or a related person;
c) is under objection by the Estate or a related person;
d) is or has been before the courts; or
e) is the subject of a ruling previously considered by the Income Tax Rulings Directorate in respect of the Estate or a related person.
The following terms have the meanings specified:
"Act" means the Income Tax Act (Canada)(R.S.C. 1985, 5th Supplement, c. 1, as amended);
"Disclaimer Agreement" means the disclaimer agreement described in 7 below;
"Estate" means XXXXXXXXXX;
"Foundation" means XXXXXXXXXX;
"Mr. A" means XXXXXXXXXX;
"Mrs. A" means the wife of Mr. A;
"Mrs. A Trust" means the trust described in 5 below;
"total charitable gifts" is as defined in subsection 118.1(1) of the Act;
"Trustees" means Mrs. A; XXXXXXXXXX; and
"Will" means the Last Will of XXXXXXXXXX.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1. Mr. A died in XXXXXXXXXX. Prior to his death, Mr. A was an individual resident in Canada within the meaning of the Act.
2. Throughout his life, Mr. A was very actively involved in numerous philanthropic endeavours. His Will specifies XXXXXXXXXX donations to the Foundation to allow it to continue with various projects on a similar basis with those undertaken while Mr. A was alive.
3. Mrs. A is an individual resident in Canada within the meaning of the Act.
4. Mr. A's Will appointed the Trustees as executors and trustees of the Estate and any trusts created pursuant to the Will. All of the Trustees are resident in Canada within the meaning of the Act. A copy of the Will was provided to us.
5. The Will provides inter alia that $XXXXXXXXXX is to be held in trust (the "Mrs. A Trust") whereby Mrs. A will be the sole income beneficiary and no person except Mrs. A may, before her death, receive or otherwise obtain the use of any of the income or capital. The Trustees have the power and authority with absolute discretion to encroach on the capital for the benefit of Mrs. A with the intent of enabling her to continue to enjoy her standard of living and providing for her health and happiness. To date, there has been no encroachment by the Trustees on the capital of the Mrs. A Trust. It is your view that the Mrs. A Trust qualifies as a spouse trust within the meaning of paragraph 70(6)(b) of the Act.
6. The Will provides that, on the death of Mrs. A, the remaining capital of the Mrs. A Trust is to be divided among the Foundation and the XXXXXXXXXX children of Mr. A. The Foundation is entitled to receive XXXXXXXXXX% of the remaining capital of the Mrs. A Trust at that time.
PROPOSED TRANSACTIONS
7. It is proposed that the Trustees and Mrs. A will enter into a binding agreement (the "Disclaimer Agreement") whereby Mrs. A will, upon obtaining independent legal advice, irrevocably disclaim any right to receive or to receive the use of any capital of the Mrs. A Trust, and the Trustees will undertake to not distribute or make available to Mrs. A any capital of the Mrs. A Trust. The income of the Mrs. A Trust will continue to be distributed in its entirety to Mrs. A throughout her lifetime. The Foundation has been provided with a copy of the Will and is fully aware of Mrs. A's intention to enter into the Disclaimer Agreement. A copy of the Disclaimer Agreement was provided to us.
PURPOSE OF THE PROPOSED TRANSACTIONS
8. The purpose of the proposed transactions is to enable the amount of the beneficiaries' capital interests in the Mrs. A Trust to be determinable and thus enable the fair market value of the gift of the capital interest to the Foundation, which will be deemed by subsection 118.1(5) of the Act to be a gift made by Mr. A immediately before he died, to be included in calculating the total charitable gifts of Mr. A.
RULING
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purposes of the proposed transactions, and provided that the proposed transactions are carried out as described above, our ruling is as follows:
A. Pursuant to subsection 118.1(5) of the Act, the gift of XXXXXXXXXX% of the capital interest in the Mrs. A Trust to the Foundation as described in 6 above shall, for purposes of section 118.1 of the Act, be deemed to have been made by Mr. A immediately before he died and, accordingly, the fair market value of the gift will be included in determining the total charitable gifts of Mr. A.
The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and is binding on the CCRA provided that the proposed transactions are completed by XXXXXXXXXX. This ruling is based on the law as it currently reads and does not take into account any proposed amendments to the Act.
No ruling is provided herein as to whether the Foundation is a registered charity within the meaning of the Act.
Yours truly,
XXXXXXXXXX
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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