Principal Issues: Whether subparagraph 8(d) of the archived IT449R remains supportable
Position: Yes under certain circumstances
Reasons: It is supportable under specific circumstances and prevailing jurisprudence
XXXXXXXXXX 2010-037845 Dominic Tiu (416) 973-8002
March 12, 2012
Dear XXXXXXXXXX :
Re: Subparagraph 8(d) of Archived IT-449R, Meaning of "vested indefeasibly"
This is in reply to your letter dated October 29th, 2009 inquiring as to whether the sample circumstances described in subparagraph 8(d) in Interpretation Bulletin IT-449R is still supported by the Canada Revenue Agency ("CRA") considering the bulletin has been archived since September 25, 1987.
Our Comments:
Paragraph (8) of archived IT-449R described various sample circumstances in which the issue of whether property has vested indefeasibly is relevant and subparagraph 8(d) described the following particular sample circumstance:
"A taxpayer, by her will, directs that certain shares, owned by her immediately before her death are to be distributed to a beneficiary. The shares, however, are subject to a buy-sell agreement. Where the terms of the buy-sell agreement provide that it is compulsory for the executor of the taxpayer's estate to sell and the other party to buy the shares, the shares will not be considered to vest indefeasibly in the beneficiary. Where, however, the terms of the buy-sell agreement merely give the other party an option to acquire the taxpayer's shares which may or may not be exercised and the taxpayer's executors transfer the shares to the beneficiary before the option is exercised, the shares will be considered to vest indefeasibly in the beneficiary at the time of the transfer. These same comments will apply where the beneficiary is a trust created by the taxpayer's will and the executors are also trustees of the trust. If the taxpayer, in her will, directs her executors to sell shares before settling her estate, the shares will not be considered to vest indefeasibly in any beneficiary."
In our opinion, the sample circumstance described in subparagraph 8(d) of the archived IT-449R, in and by itself, is still supportable. However, it will remain a question fact and subject to the prevailing jurisprudence at the relevant time as to whether it would be supportable in a specific case situation.
Yours truly,
Phil Kohnen
for Director
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch