Words and Phrases - "vested indefeasibly"
Catherine Brown, "Vested Indefeasibly: Its Importance for Tax Purposes", 2006 Canadian Tax Journal, Issue No. 4
Framework for determining indefeasible vesting
[T]he following may serve as a useful framework to determine whether an interest is ‘vested indefeasibly:
• The interest must be ascertainable. What is the interest?
• The recipient must be identifiable or ascertainable. Who is the beneficiary?
• The interest must not be subject to a condition precedent (except for the expiry of a previous interest). Is the beneficiary's right dependent on a condition of acquisition (for example, successfully completing university)?
• The interest must not be subject to a condition subsequent. Such an interest is usually created by the use of words such as "but if" and "provided that." Is a condition of retention attached to the gift that might cause it to be defeated (for example, "to Jeremy provided that he remains a tax resident of Canada")?
• The interest must not be subject to a determinable limitation. Such an interest is usually created by the use of words such as "while," "during," "so long as," or "until." Does a limitation exist (for example, "to A so long as he maintains his primary residence in Canada")?
• The interest must not be subject to partial divestment. This can occur if the gift is to a class of recipients, such as "my children at age 25." Is the wording of the gift such that others might share in the gift at a future time (for example, might more children be born into a class)?
• The interest need not vest "in possession"; it may vest only "in interest." Does the interest provide either an immediate or a present subsisting future right to future enjoyment (for example, on the death of the life interest holder)?
30 June 1994 T.I. 9408895 ["vested indefeasibly"]
Respecting a question as to whether that all interests in a Trust had vested indefeasibly for purposes of the predecessor of para. (g), CRA referred to The Queen v. Boger Estate, 93 DTC 5276 (FCA), and stated:
In order to apply this interpretation it is necessary to ascertain whether the beneficiaries' respective interests in the Trust had vested without either a condition subsequent or determinable limitation attached thereto.
This condition appeared to be satisfied, at the latest, following the death of XX, as following that time it appeared that the Trust was not revocable.
The trust indenture of a discretionary trust will be modified for it to become a non-discretionary trust, in order to avoid the application of the 21-year realization rule under s. 104(4)(b). Before indicating that it could not comment on whether such amendments would accomplish this end, and on their consequences, without examining the amendments and other facts in the context of a ruling application, and aftger noting that it
must examine the trust indenture, validly amended under Quebec civil law, to determine firstly, whether all the shares have been vested indefeasibly, and secondly, whether the beneficiaries' interest must end by reference to a period of time, and finally, if so, whether subparagraph (g) (v) of the Definition in subsection 108(1) applies
CRA stated (TaxInterpretations translation):
[T]here could be an indefeasible vesting of the interest in a trust if each beneficiary holds rights in the trust unconditionally and no subsequent event could annul those rights.
The Queen v. Boger Estate, 93 DTC 5276 (FCA)
Heald JA summarized findings of the trial judge (p. 5279), which he later adopted (at p. 5281) as being "accurately stated":
- that an interest is vested if (a) the person entitled to it is ascertainable and, (b) that person can take possession forthwith and can only be prevented from doing so by the existence of some prior interest. A vested interest is distinct from a contingent interest, which gives no right of enjoyment unless or until a future event occurs (a condition precedent); and
- that a vested interest is defeasible if it is subject to a condition subsequent or determinable limitation which condition or limitation must be contained in the grant.
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|Tax Topics - Income Tax Act - Section 70 - Subsection 70(9)||277|