1 June 1990 Income Tax Severed Letter AC59564 - Trust Agreement under German Civil Law a Trust for Canadian Income Tax Purposes

Financial Industries Division M. Shea-DesRosiers (613) 957-8953

Ottawa Taxation Centre

Attention: Mr. Jim Doherty
           Chief of Assessing
           Non-Resident Trusts Section

24(1)

- Whether the Will creates a Trust - Whether Subsection 70(5) of the Income Tax tax applies - Whether the Trust Agreement is a "trust" for the purposes of the Income Tax Act

We have received a request from     19(1)     concerning the
application of subsection 104(1) of the Income Tax Act to the
above-mentioned estate and the Trust Agreement as well as the
application of subsection 70(5) of the Income Tax Act to the
provisional heir upon his death.  We attach     19(1)     letter
of February 8, 1990 with the documents he had enclosed with his
letter.

We have prepared for your information and assistance this
memorandum wherein we express our opinion on the questions raised
by     19(1)     .  We are advising     19(1)     that a reply to
his queries will come from the Ottawa Taxation Centre,
Non-Resident Trusts Section.  Should you wish to discuss the
questions raised by       19(1)     after having received our
Memorandum, you may contact Mrs. Maureen Shea-DesRosiers at
957-3494.

While the Trust Agreement under German civil law is a form of
contract which, as stated     19(1)     letter, gives rise to an
agency relationship, it is our opinion that, as far as the
Department is concerned, the Trust Agreement must be considered
in light of the provisions of the Income Tax Act.

The facts, as summarized by     19(1)     in his letter to   
19(1)  dated January 31, 1990 are as follows:

1.

2.

3.

4.                             24(1)

5.

6.

7.

24(1)

COMMENT

It is our opinion that the Trust Agreement itself is a "trust" within the meaning of subsection 104(1) of the Income Tax Act (the "Act"). Although under German civil law said Agreement is not considered a trust, for the purposes of the Act, it is to be treated as a trust since it comes within the provisions of the Act which deal with trusts.

Sections 104 to 108 of the Act apply to both trust and estates. If a will includes a substitution that is not a "trust" strictly speaking, it is nevertheless, with the other testamentary provisions, an estate as provided for in subsection 104(1) of the Act and therefore constitutes a trust within the meaning attributed to it in the Act. The institute, like all legatee or heir in an estate, is a "beneficiary" within the meaning of paragraph 108(1)(b) of the Act and possesses an income interest within the meaning of paragraph 108(1)(e) of the Act, as well as a capital interest within the meaning of paragraph 108(1)(c) of the Act (whether or not the institute has the right to dispose of the substituted assets). The institute is therefore in the same situation as all legatees or heirs, since he is by definition a "beneficiary" of the "testamentary trust" of the estate that includes the legacy to the institute.

It follows therefore that the provisions of subdivision k of
Division B of Part I of the Act, and consequently subsection
104(4) of the Act, would apply to the taxable Canadian property
forming part of     24(1)     .

It is our opinion that     19(1)     will be deemed, immediately
before his death, to have disposed of his interest in the taxable
Canadian property held in the estate according to the provisions
of subsection 70(5) of the Act.

24(1)

We trust the above comments will be of assistance to you.

We trust our comments will be of assistance to you.

Chief Financial Industries Division Rulings Directorate