| 5-920008 | |
| 24(1) | Franklyn S. Gillman |
| (613) 957-8953 |
19(1)
June 16, 1992
Dear Sirs:
Re: Subsection 75(2) and 104(15) of the Income Tax Act (the "Act")
This is in reply to your letter dated December 23, 1991 wherein you requested a technical interpretation of the above two subsections within the context of a factual situation.
A review of the transaction you have enunciated should be the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R dated September 28, 1990. As expressed at paragraph 6 in the Information Circular, the Department will not express opinions on definite transactions that are being proposed other than by way of an advance income tax ruling, nor will the Department provide rulings on completed transactions.
While we are unable to provide confirmation of the tax effect with regards to situations such as the ones you described, we offer the following general comments for your assistance.
Where the terms of a trust provide that trust property revert to the settlor or is controlled by the settlor such that the property cannot be disposed of without the settlors consent, subsection 75(2) of the Act will apply to deem any income of the trust to be income of the settlor. A situation where subparagraph 75(2)(a)(ii) of the Act applies is where the settlor is able to select additional beneficiaries (or to delete beneficiaries) after the creation of the trust.
Where a preferred beneficiary is subject to the provisions of paragraph 104(15)(c) of the Act, it is the Departments opinion that the number to be used in the calculation pursuant to paragraph 2800(3)(f) of the Regulations will include any preferred beneficiary who is alive at the end of the particular taxation year of the trust. By virtue of the fact that subsection 2800(4) of the Regulations does not apply where paragraph 2800(3)(f) of the Regulations is applicable, this number will include all contingent preferred income beneficiaries including those whose rights are contingent on the death of another preferred beneficiary. It will also include all contingent capital beneficiaries where the trust document does not specify that taxable capital gains will be considered income for trust purposes. If the trust document in fact does specify that capital gains are income for trust purposes, we would exclude all capital preferred beneficiaries (contingent or otherwise) from this calculation because we would consider them never to be entitled to share in the accumulating income of the trust for any taxation year.
The above comments are an expression of opinion 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 DirectorManufacturing Industries,Partnerships and Trusts SectionRulings Directorate