| 19(1) | File No. 5-9714 |
| A.B. Adler | |
| (613) 957-8962 |
April 4, 1990
Dear Sirs:
This is in reply to your letter dated March 9, 1990 in which you requested our general views in response to three questions raised with respect to the gifting of a beneficial interest in a trust to a charity in a hypothetical example.
Our responses to your three questions follow.
1. We are not in a position to comment whether the settlement of property under a trust would be considered not to give rise to a disposition for income tax purposes based upon a hypothetical example. It is our view generally that where income producing property is transferred to a trust by a settlor/beneficiary of the trust, at the time the trust is established, that taxpayer acquires a capital and/or income interest in the trust, depending upon the circumstances. However in order for subparagraph 54(c)(v) of the Income Tax Act ("Act") to apply, the taxpayer must acquire capital and income interests in the trust that have rights and attributes that are identical to the rights and attributes attached to the property. The property is then legally owned by the trust but is beneficially owned by the transferor through his interests in the trust.
2. Provided that the settlor/beneficiary's interest(s) in a trust includes the legal right under the trust deed to receive a portion of the capital of the trust, then he will be the beneficial owner of a capital interest as defined in paragraph 108(1)(c) of the Act, and such capital interest would generally be "capital property" as defined in paragraph 54(b) of the Act. Further, if this is the case and the capital interest is bequeathed to a registered charity, the settlor/beneficiary's legal representative would be eligible to elect, on his behalf, under subsection 118.1(6) of the Act.
If, however, the settlor did not acquire a capital interest in the trust at the time the relevant property was settled thereunder and that property was in fact capital property then a disposition of such capital property would occur at that time by reason of subparagraph 54(c)(iii) of the Act.
3. It would be a question of fact whether the settlor/beneficiary would be considered to have made a gift to the trustee of a portion of capital property settled on the trust. If such a gift was made at that time then a disposition of such property would occur by reason of subparagraph 54(c)(iii) of the Act, and the portion of the property gifted to the trustees would be separate from the capital interest, if any, of the settlor in the trust and would not be eligible for a settlor in the trust and would not be eligible for a subsection 118.1(6) election to be made on his behalf.
Should you have a particular case in mind we suggest that you request a ruling.
We trust that our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate