Words and Phrases - "vested indefeasibly"
17 March 2003 External T.I. 2002-0130685 F - Limite inférieure - JVM Participation
After referring to the meaning of “vested indefeasibly” discussed in IT-449R, CCRA stated:
Therefore, where the rights of the beneficiaries in the trust are not vested and can be changed for any reason by the trustee or otherwise, the interests in the trust cannot be regarded as vested indefeasibly.
| Locations of other summaries | Wordcount | |
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| Tax Topics - Income Tax Act - 101-110 - Section 107.4 - Subsection 107.4(4) | purpose of s. 107.4(4) | 176 |
Folio S6-F4-C1, "Testamentary Spouse or Common-law Partner Trusts," 3 February 2022
1.2-1.3 Indefeasible vesting requirement. The capital property distributed to the spouse trust etc. must vest indefeasibly in it within 36 months of the taxpayer’s death, subject to extension. “[V]ested indefeasibly refers to the unassailable right to ownership of a particular property that, in consequence of the death of the owner, has been transferred to a spouse trust of the deceased.”
1.6 Negative partnership ACB. Negative ACB on a partnership interest will be triggered when distributed.
1.13 Executor can have discretion as to what property is transferred to spouse trust. The executor is permitted to have the discretion as to which properties are to be transferred to the spouse trust with the will specifying only the total value, or portion, of the estate to be so transferred. The will may also direct the establishment and terms of a spouse trust but leave total discretion to the executor to select both the total value of and property to be transferred to the trust.
1.18 Non-application to substituted property. S. 70(6) applies on a property-by-property basis. Substituted property transferred to the spouse trust etc. would not qualify. For example, if a legal representative disposed of the assets of an estate of a deceased in order to transfer the proceeds of disposition (or property substituted for those proceeds) to a spouse trust created by the will of the deceased, subsection 70(6) would not apply.
1.26 Disqualification resulting from trustee discretion. The trust is disqualified by the existence of a power to encroach on the capital or income for the benefit of persons other than the spouse or common-law partner, prior to their death – or by a discretion of the trustee to allocate the trust’s income or capital among members of the deceased taxpayer’s family during the life of such individual.
1.27 – 1.29 Spousal discretion. Only the spouse can have discretion respecting trust income distribution. In order for a spouse or common-law partner to have a legal right to enforce payment of the income of the trust (as required under s. 70(6)(b)(i)), any discretion respecting distribution of trust income must be solely in that individual’s hands. However, retention of trust income at that individual’s direction does not disqualify it (although such income would still be included in the individual’s income under s. 104(24), absent a s. 104(13.1) election).
1.30-1.31- No limitations on spousal income entitlement. The terms of the trust cannot permit the trustee to restrict the payment to the spouse or common-law partner of any portion of the trust’s income, nor may the individual’s income entitlement be limited to a certain percentage of the value of the trust property.
1.32 Constructive receipt applied. The doctrine of constructive receipt is applied, for example, a payment of trust income according to the will to a person other than the spouse or common-law partner, on condition of its use solely for the individual’s benefit would not disqualify the spouse trust.
1.33 Funding of policy on spousal life not permitted. Where the trust terms permit the trustee to fund a life insurance policy held by the spouse trust on the life of the spouse or common-law partner, this would mean that a person other than that individual may obtain the use of trust capital or income, contrary to s. 70(6)(b)(ii).
1.34 FMV transactions. The renting of real estate at market value or the lending of money on commercial terms does not generally mean that the tenant or borrower has obtained the use of that property.
15 June 2021 STEP Roundtable Q. 6, 2021-0883021C6 - Vested Indefeasibly
(a) What is required for all interests in a trust to have vested indefeasibly; and
(b) how is this disclosed on the trust return?
(a) CRA noted that its comments in 2018-0744111C6, as to what is required in order for an interest in a trust to vest indefeasibly, still apply.
For an interest in a trust to vest indefeasibly in a beneficiary of the trust, the situation must be one where the beneficiary can be ascertained and there is no condition precedent to the beneficiary holding such trust interest. Further, there must be no condition subsequent or possible future event or limitation that could revoke, limit or defeat the beneficiary’s interest in the trust. Where none of the exceptions in subparagraphs (g)(i) through (vi) apply, and it is clear in law that the interests have vested indefeasibly since inception, or where a trust gives the trustees the power to indefeasibly vest the interest in the trust and they lawfully do so before the 21st anniversary date specified in s. 104(4), the 21-year deemed disposition rule will not apply.
(b) After indicating that the T3 return does not request information on whether all of a trust’s interests have vested indefeasibly, CRA noted that those handling CRA’s intake and assessment of T3 returns have seen various approaches including a covering letter or a note on the top of the return explaining why no T1055 form was being filed (or simply stating that all interests had vested indefeasibly), or filing a blank T1055 along with such a note.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 70 - Subsection 70(5) | s. 107.4(4) establishes floor for FMV proceeds under s. 70(5) of a trust capital interest that has vested indefeasibly | 97 |
29 May 2018 STEP Roundtable Q. 9, 2018-0744111C6 - Vested Indefeasibly
For purposes of the 21-year deemed disposition rule, a trust does not include a trust "all interests in which … have vested indefeasibly". What is required for this to occur?
CRA indicated that although the rollover treatment addressed in IT-449R was a different subject than the vesting indefeasibly of the interests in a trust, the comments in the Bulletin nonetheless were equally applicable to the latter. CRA also referenced Boger Estate, which indicated that vesting occurs when there is no condition precedent to be fulfilled before the gift can take effect, and the persons that are entitled are ascertained and ready to take possession – there can be no prior interest in existence – and that a vested interest becomes indefeasible where there is no condition subsequent, or determinable limitation set out in the grant.
Per CRA's oral remarks, the 2006 article of Catherine Brown laid out a good checklist of the questions to ask in making the determination.
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)?
18 December 2013 External T.I. 2011-0414841E5 F - All interests vested indefeasibly
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.
30 June 1994 External T.I. 9408895 - TRUSTS - MEANING OF "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 Queen v. Boger Estate, 93 DTC 5276, [1993] 2 CTC 81 (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.
| Locations of other summaries | Wordcount | |
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| Tax Topics - Income Tax Act - Section 70 - Subsection 70(9) | 287 |