A housing unit is subject to a usufruct created by the Quebec will of Mr. X, with Mr. X’s surviving spouse (Ms. X) being the usufructuary, and their child being the bare owner. Ms. X ordinarily inhabits the housing unit.
The creation of the usufruct would create a deemed (testamentary) trust under s. 248(3), which would qualify as a spousal trust for purposes of the s. 70(6) rollover to such trust of the residence assuming that, under the terms of the will, no person other than Ms. X would be entitled during her lifetime to receive or otherwise obtain the use of any part of the income or capital of the trust.
CRA indicated that the death of the usufructuary (Ms. X) would terminate the usufruct and the deemed trust, which would imply the distribution of the housing unit to the bare owner, to which s. 107(2.1) would apply. Similarly, if Ms. X surrendered her usufruct, this would terminate the deemed trust and result in the distribution of the deemed trust’s property to the bare owner, with s. 107(2.1) again applying to that distribution.
Finally, what if the bare owner (the child) assigned her bare ownership interest in the residence to her mother, the usufructuary (Ms X), or predeceased her mother? CRA indicated that, pursuant to s. 70(5) or 69(1)(b), the bare owner would be deemed to have received the FMV of the capital interest in the deemed trust on its deemed disposition on the death, or on its assignment to the usufructuary, respectively. Moreover, the assignment to the usufructuary would cause the deemed trust’s termination, so that the housing unit would be distributed to the usufructuary pursuant to s. 107(2).