XXXX G. Kauppinen (613) 957-3495
December 17, 1986
Dear Sirs:
This is in reply to your letter dated October 31, 1986 wherein you requested our opinion with respect to subsection 73(5) of the Income Tax Act ("Act") assuming the following:
1. A parent wishes to transfer, in 1986 or 1987, shares of a small business corporation (as defined in subsection 248(1) of the Act) to a trust solely for the benefit of his minor child.
2. The conditions outlined in subparagraphs-12(a), (b) and (c) of Interpretation Bulletin 486 (" IT-486 ") are satisfied. Paragraph 12(d) of IT-486 is not satisfied because the parents and child are residents of British Columbia and it is your understanding that British Columbia law does not technically prohibit direct ownership of property by a minor.
3. In your opinion, the legal restrictions concerning a minor's ability to contract in British Columbia in most cases necessitates the use of a trust for the holding of property which is beneficially owned by the minor.
You have requested whether this Department would consider a rollover pursuant to subsection 73(5) of the Act to be available in the foregoing circumstances.
Since the Department's position on this issue as outlined in paragraph 12 of IT-486 is entirely administrative, it is our opinion that if the provincial legislation allows property to be deeded to, or owned directly by a child that is a minor then the use of a trust under these circumstances would prohibit the application of subsection 73(5) of the Act. The fact that the child cannot contract while a minor under the British Columbia legislation is irrelevant.
We regret our reply could not be more favourable.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch