Principal Issues: Does the fact that the spouse of the settlor/beneficiary of a trust inhabit the principal residence of the trust taint the trust for the purpose of subparagraph 73(1.01)(c)(ii)?
Position: Question of law and fact. However, if the terms of the trust satisfies the conditions of subparagraph 73(1.01)(c)(ii), the fact that the settlor/beneficiary of the trust permits his/her spouse after the transfer to continue to inhabit the principal residence with him or her will not in and by itself taint the trust.
Reasons: The use of the principal residence of a trust by the spouse of the settlor is granted by the settlor/beneficiary not under the trust.
XXXXXXXXXX 2015-060745 Lucie Allaire, LL.B CPA, CGA, D. Fisc. April 21, 2016 Dear Sir,
This letter is in response to your e-mail of September 8, 2015 asking whether the fact that a spouse lives in a principal residence (footnote 1) with the individual who transferred the residence to a trust results in subparagraph 73(1.01)(c)(ii) of the Income Tax Act (the "Act") not being complied with.
Specifically, you described the situation of an individual who owned a principal residence which he occupied with his wife. In order to benefit from the application of subsection 73(1), he transferred the residence to a trust referred to in subparagraph 73(1.01)(c)(ii), the terms of which satisfied the conditions in subsection 73(1.02). After the transfer of the residence to the trust, the wife continued to live with the individual.
Unless otherwise indicated, all statutory references are references to the provisions of the Act.
Our Comments
This technical interpretation provides general comments about 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.
In order for subsection 73(1) to apply to the transfer of a capital property, the capital property must, among other things, be transferred in circumstances described under subparagraph 73(1.01)(c)(ii). For this purpose, subject to subsection 73(1.02), the capital property must be transferred by an individual to a trust established by the individual in respect of which the individual is entitled to receive all of the income of the trust that arises before the individual’s death and no person except the individual may, before the individual’s death, receive or otherwise obtain the use of any of the income or capital of the trust.
Whether the terms of a trust's deed comply with the condition set out in subparagraph 73(1.01)(c)(ii) is a question of fact and law.
In a situation where a trust deed provides an individual the right to receive all of the income of the trust that arises before the individual’s death and no person except the individual may, before the individual’s death, receive or otherwise obtain the use of any of the income or capital of the trust, we are of the view that the fact that the individual permitted his spouse or common-law partner to live with him should not, by itself, result in the condition in subparagraph 73(1.01)(c)(ii) not being met.
We hope that our comments are of assistance.
Louise J. Roy, CPA, CGA
Manager
for the Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 For the purposes of the definition of principal residence in section 54.