Principal Issues: Is a testamentary trust a beneficiary or a person beneficially interested in an estate for the purpose of subsection 70(3)?
Position: It is a question of law and fact, but it is possible for a testamentary trust to be a beneficiary of an estate or a person beneficially interested in an estate pursuant to subsection 248(25).
Reasons: The term "beneficiary" in subsection 70(3), as well as the expression "beneficially interest" in subsection 248(25).
XXXXXXXXXX 2016-065392 Lucie Allaire, LL.B, CPA, CGA, D. Fisc. June 28, 2017
Dear Sir,
Subject: Rights or property transferred to beneficiaries
This letter is in response to your e-mail of June 17, 2016 in which you inquired as to whether a testamentary trust is a beneficiary or a person beneficially interested in an estate for the purposes of subsection 70(3) of the Income Tax Act (the "Act").
Specifically, you described the situation of an individual, a XXXXXXXXXX artist resident in Canada who, until death, carried on a business of creating and selling works of art for which he had made an election under subsection 10(6). These works of art, which were held as inventory (the "Property") were rights or things for the purposes of subsection 70(2). The will of the individual, which was governed by the Civil Code of Québec, provided that the Property was to be bequeathed to a testamentary trust whose beneficiaries were the spouse and descendants of the deceased individual.
The legal representative of the deceased individual did not make an election under subsection 70(2) of the Act and transferred or distributed the Property to the testamentary trust before the expiry of the period for the exercise of an election under subsection 70(2).
Unless otherwise indicated, all legislative references are to provisions of the Act.
Our Comments
This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Subsection 70(3) applies where before the time for making an election under subsection 70(2) has expired, a right or thing has been transferred or distributed to a beneficiary or other person beneficially interested in the estate or trust.
Whether a testamentary trust is a beneficiary or a person beneficially interested in the estate for the purposes of subsection 70(3) is a question of fact and of law. Since the term beneficiary is not defined in the Act, it is interpreted in the light of its meaning under applicable private law.
Consequently, to the extent that the testamentary trust is, under applicable private law, a beneficiary of the estate at the time of the transfer or distribution of the Property by the estate, the testamentary trust could be considered a beneficiary or a person beneficially interested in the estate of the deceased individual for the purposes of subsection 70(3).
We hope that our comments will be of assistance.
Best regards,
Louise J. Roy, CPA, CGA
Section Manager
for the Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch