15 June 2021 STEP Roundtable Q. 12, 2021-0885671C6 - Property owned jointly

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.

Principal Issues: Is it possible for spouses to jointly create a trust which meets the conditions set out in subparagraph 73(1.01)(c)(iii) of the Act with a contribution of property jointly-owned by the spouses? Further, is it possible for one or both spouses to make subsequent contributions to the trust on a tax-deferred basis with property that is owned jointly by the spouses, and other property that is owned individually? Assume that both spouses have attained 65 years of age and are resident in Canada at all relevant times. Additionally, would paragraph 104(4)(a) apply in this particular situation?

Position: Yes. Yes. Yes.

Reasons: See below.

2021 STEP CRA Roundtable – June 15, 2021
QUESTION 12. Joint Spousal or Common-Law Partner Trust – Contribution of Jointly-Held Property

Is it possible for spouses or common-law partners to jointly create a trust which meets the conditions set out in subparagraph 73(1.01)(c)(iii) of the Act with a contribution of property jointly-owned by the spouses or common-law partners? Further, is it possible for one or both spouses or common-law partners to make subsequent contributions to the trust on a tax-deferred basis with property that is owned jointly by the spouses or common law partners, and other property that is owned individually? Assume that both spouses or common-law partners have attained 65 years of age and are resident in Canada at all relevant times. Additionally, would paragraph 104(4)(a) apply in this particular situation?

CRA Response

Pursuant to subsection 73(1) of the Act, an individual (other than a trust) can transfer capital property on a tax-deferred basis, where certain conditions are met. In order for subsection 73(1) to apply, the following conditions must be met:

1. at the time of the transfer of property, both the transferor of the property and the transferee must be resident in Canada;

2. the transferor must not elect out of the rollover rule; and

3. subsection 73(1.01) must apply in respect of the transfer (a “qualifying transfer”).

Subsection 73(1.01) provides that, subject to the requirements of subsection 73(1.02), qualifying transfers include, inter alia, transfers to a trust created by the individual transferring the property that meet the requirements of subparagraph 73(1.01)(c)(iii), such that the individual and his or her spouse or common-law partner are entitled to receive all the income of the trust arising before their deaths and under which no one other than the individual or the individual’s spouse or common-law partner is permitted to receive or otherwise obtain the use of any of the income or capital of the trust before the death of both the individual and the individual’s spouse or common-law partner.

Subsection 73(1.02) imposes additional conditions that must be met in order for a trust to meet the requirements of subparagraph 73(1.01)(c)(iii). In this particular case:

• the trust must be created after 1999; and
• the individual must be at least 65 years of age at the time the trust is created.

A trust described in subparagraph 73(1.01)(c)(iii) that meets all of the relevant conditions outlined above will generally be a “joint spousal or common-law partner trust” as defined in subsection 248(1).

If a trust was created by the contribution of jointly-owned property by an individual and the individual’s spouse or common-law partner and no other person, the trust would be considered to be created by both individuals for purposes of subsection 73(1.01). Thus, as long as a trust was created by both individuals and no one else, and the other conditions in subsections 73(1), (1.01) and (1.02) were met, a transfer of property by either spouse or common-law partner or both spouses or common-law partners to the trust after its creation would be eligible for the rollover provided in subsection 73(1).

For a joint spousal or common-law partner trust, paragraph 104(4)(a) provides that the trust will be deemed to have disposed of certain properties at the later of the day on which the individual dies and the day on which the individual’s spouse or common-law partner dies for proceeds equal to the fair market value of the property at that time and the trust will be deemed to have acquired the property immediately thereafter at a cost equal to that same amount. This will generally result in the trust reporting taxable capital gains in the year in which the relevant death occurs. For the 2016 and subsequent taxation years, paragraph 104(13.4)(a) provides, inter alia, that the taxation year of a joint spousal or common-law partner trust is deemed to end at the end of the day of death referred to in paragraph 104(4)(a), and that a new taxation year is deemed to begin immediately after that day.

Katie Robinson
2021-088567