5-920310
J.-P. Simard
(613)957-8953
24(1)
Attention: 19(1)
February 14, 1992
Dear Madam:
This in reply to your letter, dated January 24, 1992, whereby you request our views as to whether a clause of a will would create a spousal trust subject to the provisions of paragraph 70(6)(b) of the Income Tax Act (the "Act").
It is your understanding that the surviving spouse is entitled to all of the income on the money bequeathed to the testator's son, to be paid to the son at the moment of the death of his mother; that no person, except the spouse, can obtain the use of any of the income or capital of the trust before the spouse's death; that if the money is invested by the executors in a financial institution under the name of "Estate of Mr. X" within the period of 36 months following the testator's death, the amount will be considered as vested indefeasibly in the trust.
As stated in paragraph 21 of Information Circular 70-6R2, dated September 28, 1990, our district offices are generally responsible for opinions on completed transactions. However, we may offer you the following general comments that we hope will be useful, but may not be relevant to your particular fact situation.
The question of whether a trust at law, an usufruct or a substitution has been created is a question of fact that can only be determined after a review of the relevant documentation and circumstances. In the case of an usufruct or substitution created after 1990, the provisions of subsection 248(3) of the Act will apply to deem such usufruct or substitution to be a trust. You will find in Interpretation Bulletin IT-449R comments on the meaning of "vested indefeasibly".
Provided that your understanding as set out in the second paragraph above is correct, that the testator was resident in Canada immediately before his death and that the trust is resident in Canada, it is our view that the rules of subsection 70(6) of the Act would apply with respect to any property transferred to the trust that is a property to which paragraphs 70(5)(a) and (c) or paragraphs 70(5)(b) and (d), as the case may be, would otherwise apply.
Paragraph 70(6)(d) of the Act provides that the taxpayer shall be deemed to have disposed of the property immediately before his death and to have received proceeds of disposition therefor equal to, in the case of property other than depreciable property, the adjusted cost base to the taxpayer of the property immediately before his death. The term "property" is defined in subsection 248(1) of the Act to include money. Although, there is a deemed disposition of money held by the deceased immediately before death, pursuant to the provisions of subsection 70(5), no gain or loss usually results from the disposition of money held in cash or as a current deposit with a financial institution, in Canadian currency. If the property transferred to the trust, or deemed trusts, consists only in a sum of money, the application of subsection 70(6) of the Act may be of no consequence.
We trust this will be of assistance to you.
Yours truly,
for DirectorManufacturing Industries,Partnerships and TrustsRulings DirectorateLegislative and intergovernmentalAffairs Branch