Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: 1. Does the 21 year rule apply to a commercial trust? 2. Is the trust entitled to a rollover if it transfers its assets to a bare trust?
Position: 1. no 2. A transfer to a bare trust does not result in a disposition so that no gain or loss is reported as a result of the transfer.
Reasons: 1. (g) of the def'n of trust in 108(1) 2. (e) of the def'n of disposition in 54 - also covered by proposed changes to 104(1) and (f) of the proposed def'n of disposition in 248(1)
March 30, 2000
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Martin Cauchon, Minister of National Revenue, has asked me to reply to your letter of February 16, 2000, concerning the taxation of a specific trust of which you are a beneficiary. As you may be aware, on November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).
A trust is treated as a separate entity from its settlor and beneficiaries for income tax purposes. The confidentiality provisions of the Income Tax Act prevent me from providing specific information about a trust without authorization from its trustee who has ownership and control of the trust property. However, I can provide you with general information concerning the issues raised in your letter.
You asked that the CCRA deny the trust a rollover of the cost of its assets if it transfers them to a bare trust. A transfer of property which creates a change in the legal ownership of property without any change in beneficial ownership is specifically excluded from the definition of a "disposition" found in section 54 of the Act. As a result, no gain or loss is recognized on the transfer of assets to a bare trust; however, as stated in the attached copy of Income Tax Technical News No.7, under the heading Bare Trusts, the transferor would continue to be considered the owner of the property for all purposes related to income tax. The information contained under the headings Revocable Living Trusts, Protective Trusts and Bare Trusts sets out the criteria to be considered in determining whether a change in beneficial ownership has occurred upon the transfer of assets to a trust. While draft legislation released by the Department of Finance on December 17, 1999, proposes to amend various rules in the Act relating to trusts and the definition of "disposition", the tax consequences related to a transfer of property to a bare trust would not change under the proposals.
You also expressed the view that the 21-year rule should apply to the trust described in your letter. Under the 21-year rule, certain trusts are considered to have disposed of all their assets on the dates specified in the Act for an amount equal to their fair market value at that time and to have reacquired them for the same amount. This rule does not apply to a unit trust or to a trust in which all interests are vested indefeasibly and in which no interest may become effective in the future (generally referred to as a commercial trust). A complete list of the trusts that are excluded from this rule is found on page 26 of the T3 Guide and Trust Return, a copy of which is attached for your information.
Thank you for bringing your concerns to the CCRA's attention.
Yours sincerely,
Bill McCloskey Assistant Commissioner Policy and Legislation Branch
Attachments