5-910166
Dear Sirs:
This is in reply to your letter dated January 4, 1991 in which you requested our comments on the application of subsections 105(1), 105(2) and 75(2) of the Income Tax Act (the Act) with respect to two hypothetical situations.
As noted in Information Circular 70-6R2, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling request. As a consequence thereof, we may only offer the following general comments.
Generally, it is the department's position that a benefit will arise by reason of subsection 105(1) of the Act where the fair market rental of a recreational property of a trust exceeds the aggregate amount of payments by its beneficiaries of, for example, maintenance, taxes, etc. in respect of the property. However, as indicated in question 31 of the Round Table Discussion at the November 1989 Canadian Tax Foundation Conference, where the property is personal use property of an individual, such as a cottage, the Department would generally not seek to access a benefit for the use of the property where the trust is effectively standing is the place of the individual and no benefit or advantage would have arisen if the individual, instead of the trust, had allowed the use of the property.
We agree that subsection 105(2) of the Act would not apply where the trust has no source of income and its beneficiaries paid directly or indirectly all the upkeep, maintenance and taxes in respect of a recreational property that was property of the trust.
With respect to the application of subsection 75(2) of the Act it is a question of fact based on the terms of the trust whether or not subsection 75(2) would apply. In your hypothetical situations the father is the sole trustee and it seems that he could, in fact, exercise control over the disposition of trust property for his own benefit, and therefore, the attribution rules in subsection 75 (2) could apply.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate