| 24(1) | 5-902601 |
| D.S. Delorey | |
| (613) 957-3494 |
19(1)
November 14, 1990
Dear Sir:
This is in reply to your letter of September 18, 1990 concerning a "Spouse Trust"; i.e., a trust described in paragraph 73(1)(c) of the Income Tax Act (the "Act").
In particular, you request our views on the following two questions:
1. For the purposes of subparagraph 73(1)(c)(i) of the Act, the income of the trust is defined in subsection 108(3) of the Act. You ask if the payment from such income of the following items would cause someone other than the spouse to be entitled to receive some of the income of the trust in contravention of subparagraph 73(1)(c)(i):
(a) trustee's fees;
(b) lawyer's and accountant's fees; or
(c) taxes payable by the trust as a result of a subsection 104(13.1) designation.
2. Where an expenditure is not deductible in arriving at the income of the trust (e.g., a realtor's fees incurred on the acquisition of a building), you ask if the payment of that expenditure from the capital of the trust would cause someone other than the spouse to obtain the use of any income or capital of the trust in contravention of subparagraph 73(1)(c)(ii) of the Act.
We note that your enquiries relate to a specific proposed transaction and that you have listed in your letter a set of facts relevant thereto. Where questions relate to a factual situation, we are unable to definitively reply thereto without first having knowledge of all relevant facts and having had the opportunity of reviewing all relevant documentation. As indicated in Information Circular 70-6R2, such a review is conducted only where the proposed transaction is the subject matter of an advance ruling request submitted in the manner set out in that Circular. The following comments are therefore of a general nature only.
Where fees are deductible in computing the income of a trust, the payment of those fees by the trust will not contravene subparagraph 73(1)(c)(i) of the Act. As indicated on page 11 of the 1989 "T3 Guide and Trust Return", legal and accounting fees are generally deductible in computing the income of a trust where they are incurred to earn the income of the trust. The extent to which trustee fees are deductible in computing the income of a trust are discussed on page 10 of that Guide.
Where a trust incurs a tax liability as a result of a designation under subsection 104(13.1) of the Act, it is our view that the payment of the taxes out of trust income will not in and of itself affect the status of a spouse trust.
As indicated in paragraph 5(g) of Interpretation Bulletin IT-207R, fees paid to a trustee out of the capital of the trust for the administration of the trust will generally not contravene subparagraph 73(1)(c)(ii) of the Act.
Where other amounts are paid out of the capital of a trust, it will be a question of fact as to whether or not such payment will affect the status of a trust that otherwise qualifies as a spouse trust. As indicated in paragraph 5(f) of IT-207R, that status will generally not be affected where the payment relates to a debt or obligation incurred for the benefit of the spouse. Also, that status would generally not be affected where one type of capital property is exchanged for another type of capital property of equal value. Where real property is acquired in such an exchange, the cost of the real property would include reasonable realtor fees related to the acquisition, as explained on page 7 of the 1989 "Capital Gains Tax Guide".
The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 21 of Information Circular 70-6R2. We trust however, that they are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate