Principal Issues: Will an absolute discretionary "Henson" style trust qualify as a trust for purposes of the February 27, 2004 proposed technical amendments to subparagraph 60(l)(ii) of the Act?
Position: Question of fact, may be possible.
Reasons: Provided a valid trust is established, it may be possible to structure an absolute discretionary "Henson" style trust to qualify as a trust for purposes of the February 27, 2004 proposed technical amendments to subparagraph 60(l)(ii) of the Act.
XXXXXXXXXX 2005-011372 G. Allen April 6, 2005
Dear XXXXXXXXXX:
Re: Subparagraph 60(l)(ii) of the Income Tax Act (the "Act")
This letter is in reply to your letter dated January 28, 2004, wherein you enquire whether an absolute discretionary "Henson" style trust would qualify as a trust for purposes of the February 27, 2004 proposed technical amendments to subparagraph 60(1)(ii) of the Act.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the CRA. All publications referred to herein can be accessed on the CRA website at the following address:
http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.htm l.
Our Comments
The determination of whether a particular trust would qualify as a trust for purposes of the February 27, 2004 proposed technical amendments to subparagraph 60(l)(ii) of the Act, is a question of fact that could only be determined after a review of all of the relevant facts in a particular fact situation.
The existence of a valid trust is determined by the relationship between the settlor, the trustees and the beneficiaries. The relationship, which may or may not be defined by a formal written document, is codified by any applicable trust legislation and common law. It is accepted at law that a trust cannot be established unless three certainties are present:
? Certainty of Intention - A person must transfer property or an interest in property with an intention to create a trust relationship.
? Certainty of Property - The property or interest therein that is to be held in trust must be identifiable with certainty.
? Certainty of Objects - The beneficiaries of the trust must be identified and ascertained.
Whether these three certainties are present is a question of fact, which can only be determined on a case-by-case basis.
In your letter, you describe an absolute discretionary "Henson" style trust as a trust that is often used to safeguard a disabled beneficiary's entitlement to social assistance. In our view, provided the above three certainties are present and a valid trust is established, it may be possible to structure an absolute discretionary style "Henson" trust in such a manner that the trust would qualify as a trust for purposes of the February 27, 2004 proposed amendments to subparagraph 60(l)(ii) of the Act.
We trust the above comments will be of assistance.
Yours truly,
Roberta Albert, CA
Manager
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch