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.
Dear Sirs:
Re: Attribution Rules
This is in reply to your letter of August 26, 1991 addressed to the Vancouver District Office which was forwarded to this office for consideration and reply. Your letter requested clarification as to the application of the attribution rules set out in subsections 74.1(1) and 74.3(1) of the Income Tax Act ("Act") under the set of circumstances set out below; particularly in light of the comments appearing in IT-511 at paragraph 2
It is our understanding of the circumstances that a currently non- resident individual intends to become resident in Canada and, prior to his arrival, further intends to set up an "offshore" trust, for the benefit of his spouse, into which he will transfer income producing property. The income generated by the property in the trust will remain in the trust. The trust itself will be created in such a way as to qualify for the (up to sixty months) tax-free treatment provided for in subsection 94(1) of the Act.
It is your view that as long as the income from the property in the trust remains in the trust then it will not be subject to tax either in the hands of the beneficiary or by attribution, the transferor. As well, since the trust will be considered a non-resident trust for the first 60 months it will not be subject to tax in Canada.
Our Comments
As a general rule, where property has been transferred to a trust for the benefit of the transferor's spouse, the income produced by the transferred property that becomes payable to the spouse beneficiary would be considered received by the spouse but, by attribution, would be taxable in the hands of the transferor. Where the income remains in the trust then the attribution rules do not apply. The income would then be taxed in the trust subject to all of the applicable provisions of the Act One such relevant provision is subsection 94(1) which provides non-resident status to a trust for up to 60 months of the transferor's cumulative residency in Canada Whether the trust in question qualifies for such treatment is a question of fact.
The comments in paragraph 2 of IT-511 are intended to set out the general application of subsection 74.1(1) of the Act to the more usual transaction which normally sees income earned by the transferred property actually being received by the spouse. The remainder of the bulletin discusses many of the exceptional or excluded transactions.
We hope that our comments will be of some assistance to you.
Yours truly,
P Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. Vancouver District Office Technical Business Enquiries Att: J C. Fitz-Clarke
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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