| 19(1) | 5-903154 |
| F. Francis | |
| (613) 957-3496 |
November 29, 1990
Dear Sir:
This is in reply to your letter of November 1, 1990, in which you requested our opinion as to the tax consequences of surplus campaign funds raised on behalf of candidates for municipal office.
You specifically raised six questions that were based on the tissue as to, whether the arrangement constituted a trust. The determination of whether or not a trust exists is a question of fact that can only be made after a detailed examination of all relevant information. Consequently, we will only offer the following general comments.
The filing requirements for trust returns are outlined on page 2 of the "T3 Guide and Trust Return" which is available at the local district taxation office. If an arrangement is, in fact, a trust, any income therein that is not payable to the beneficiaries is generally taxable in the trust under section 122 of the Income Tax Act (the "Act"). However, if the terms of a trust provide that trust property reverts to the settlor or is controlled by him such that the property cannot be disposed of without his consent, subsection 75(2) of the Act will apply to deem any income of the trust to be income of the settlor.
The distribution of property by a trust to a capital beneficiary is subject to the rules under section 107 of the Act. Generally, subsection 107(2) of the Act provides for a tax free transfer for a "personal trust" as defined under subsection 248(1) of the Act.
The deductibility of interest expense is governed by the rules under paragraph 20(1)(c) of the Act. In this regard we note that interest on money borrowed by a settlor in a particular year would not be deductible against interest earned in the trust in a subsequent year.
We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate