22 July 2002 External T.I. 2002-0139205 - 75 (2) Arising as Consequences of A Will

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: 75(2) arising as a consequence of the transferor's spouse's will

Position: Generally, 75(2) will not apply

Reasons: Wording of 75(2)

XXXXXXXXXX 								Pascal Tétrault
	2002-013920
July 22, 2002

Dear XXXXXXXXXX:

Re: Subsection 75(2) and Distribution Arising as a Consequences of a Will

In response to your letter of April 12, 2002 we would like to comment on the position taken in our letter of February 19, 2002 (document number 2002-011653) sent to you regarding the above captioned matter.

The letter of February 19, 2002 dealt, inter alia, with the operation of subsection 75(2) of the Income Tax Act (the "Act") in the following two scenarios where the taxpayer transfers property to a trust for which he is neither a trustee, nor a beneficiary and for which the terms of the trust agreement are as follows:

Scenario 1

The taxpayer's spouse, during her lifetime, is the sole beneficiary of the trust.

Following the spouse's death, individuals, other than the taxpayer, are the beneficiaries of the trust.

Following the spouse's and all other beneficiaries' death, the assets of the Trust are to be distributed in accordance with the terms of the spouse's will.

Scenario 2

The taxpayer's spouse, during her lifetime, is the sole beneficiary of the trust.

No other beneficiaries are named under the terms of the trust.

Following the spouse's death, the assets of the trust are to be distributed in accordance with the terms of the spouse's will.

The position taken in the letter of February 19, 2002 is that the two factual scenarios fall within the ambit of subsection 75(2) of the Act. We have carefully reconsidered that position in light of your comments. As you said, if the property is held on the condition that it may revert to the person who transferred the property to the trust, subsection 75(2) of the Act may apply. However, if, in accordance with the terms of the trust, the assets of the trust are to be distributed to the spouse's estate following the spouse's death such that the property transferred initially by the taxpayer to the trust could return to the taxpayer, but only as property inherited from his spouse, we would not normally consider that subsection 75(2) of the Act would be applicable. In other words, the subparagraph 75(2)(a)(i) condition would not be considered satisfied from the potential acquisition of the property from the spouse's estate in accordance with the terms of the spouse's will. However, we should stress that the applicability of subsection 75(2) of the Act cannot be based on a single factor but must be determined on the basis of all relevant terms and conditions of a trust or any transfer of property to it.

for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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