Principal Issues: [TaxInterpretations translation]
For the purposes of paragraph 107(4.1)(b) of the Act, can it be said that "subsection 75(2) was applicable..." at a particular time to the property despite no income or capital gain having been attributed under subsection 75(2)?
Position:
Yes.
Reasons:
The provisions of subsection 75(2) apply where the conditions of paragraph 75(2)(a) or 75(2)(b) are satisfied. Even if no income of the trust has been attributed to the settlor of the trust pursuant to subsection 75(2), that subsection still applied. Consequently, the provisions of subsection 107(4.1) apply even if no immediate tax consequences arise from the application of subsection 75(2).
XXXXXXXXXX Danielle Bouffard
2005-011818
November 17, 2005
Dear Sir,
Subject: Request for technical interpretation:
Subsections 75(2) and 107(4.1) of the Income Tax Act (the "Act")
This is in response to your letter of February 24, 2005, requesting our opinion on the above subject. We apologize for the delay in responding to this request.
Facts
Mr. A, the settlor, donated a gold bar to Trust A, which retained the bar. The purpose of the gift was to establish Trust A.
According to the trust deed, Mr. A is a contingent and conditional beneficiary of Trust A, but only in the event that all the beneficiaries die. The bullion could therefore eventually be distributed to Mr. A.
The gold bullion will be held by Trust A until its winding-up and will not generate any income or capital gain.
The conditions of subparagraph 75(2)(a)(i) of the Act are satisfied.
Question
For the purposes of paragraph 107(4.1)(b), can it be said that "subsection 75(2) was applicable..." despite the fact that no income or capital gain was attributed pursuant to subsection 75(2)?
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (CRA) not to issue written opinions on proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments. These comments may not, however, apply to your particular situation in certain circumstances.
Subsection 75(2) deals with situations where a person transfers, directly or indirectly, property to a trust and under the trust that property or property substituted therefor may revert to the person or may pass to persons to be determined by the person at a time subsequent to the creation of the trust, or during the existence of the person, the property shall not be disposed of except with the person’s consent or in accordance with the person’s direction.
Paragraph 3 of Interpretation Bulletin IT-369R states that:
Subsection 75(2) … may also apply where the property may revert to the person from whom it was received as a consequence of the death of the last of all other beneficiaries under the trust.
Where, in a particular situation, the conditions of paragraph 75(2)(a) or 75(2)(b) are satisfied by a taxpayer, it is our view that subsection 75(2) was applicable to the taxpayer's property even though the trust had no income to be attributed in the period to the transferor. As stated by our Directorate in Technical Interpretation 9207365, where the provisions of subsection 75(2) of the Act were applicable at any time in respect of any property of a trust, the taxpayer is subject to the provisions of subsection 107(4.1) on the distribution of any property of the trust. Although, depending on the facts of your hypothetical situation, no income of the trust may have been attributed to the settlor of the trust pursuant to subsection 75(2), that subsection remains applicable. Consequently, subsection 107(4.1) applies even though no immediate tax consequences stem from the application of subsection 75(2). In our view, this interpretation is even more evident in the English version of paragraph 107(4.1)(b), which states that "subsection 75(2) was applicable at a particular time in respect of any property of". This interpretation reflects, in our view, the tax policy of subsection 107(4.1).
These comments are not advance income tax rulings and do not bind the CRA with respect to any particular factual situation.
Best regards,
Alain Godin
For the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Directorate General for Policy and Planning