5-910258
Dear Sirs:
This is in reply to your letter of January 14, 1991.
You refer to a factual situation in which a father holds property in trust for his son under a formal trust indenture executed in 1976. You briefly explain the arrangements, refer to the trust as a bare trust and ask if the "21-year rule" in subsection 104(4) of the Income Tax Act will apply to the trust.
We are unable to definitively reply to your enquiry without first reviewing the trust indenture and any related documentation. Since a factual situation is involved, such a review would be made by the relevant district taxation office. The following comments are therefore of a general nature.
Interpretation Bulletin IT-216, paragraph 4 and 5 of IT-437 and 1 discuss situations in which the Department has recognized the settlor of a bare trust, rather than the trust itself, to be the owner of the relevant property. Copies of these documents are enclosed.
The issue of whether or not the settlor of a bare trust should be recognized for tax purposes as the owner of the trust property in a given situation is part of an ongoing study by the Department. Until such study is completed, a taxpayer may rely on the published positions in IT-216, IT-437 and 1. That is, until the study is completed, the settlor will be treated as the owner of a property where the property is transferred to a bare trustee in circumstances comparable to those in our published position.
As an aside, we note that the Department of Finance recently introduced draft legislation whereby qualifying taxpayers may elect to extend the subsection 104(4) deemed disposition date in certain situations. Although the proposed amendments do not appear to address a situation such as that described in your letter, you may nevertheless wish to obtain a copy and review them for future reference.
We trust that our comments are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate