Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Does the fact that a Canadian financial institution performs only custodial and safekeeping functions with respect to certain assets have an impact on the determination of the residence of an estate?
Position: This would generally have no impact.
Reasons: The residence of an estate will generally be determined based on the residence of the executor or liquidator (or the legal representative having control over the property of the estate) who administers or controls the trust property. A financial institution that performs only the functions of depositary and safekeeping would generally not be considered a legal representative having control over the property of an estate and its place of residence would therefore have no impact for the purposes of this determination, which is explained in particular in paragraphs 1 to 3 of Interpretation Bulletin IT-447.
XXXXXXXXXX 2008-026438
Sylvie Labarre, CA
September 18, 2008
Dear Sir,
Subject : Residence of an estate
This is in response to your fax of December 17, 2007 in which you asked our opinion on the concept of an estate and the residence of an estate. We apologize for the delay in responding to this request.
More than 20 years ago, non-resident individuals entrusted the custody of certain funds to a Canadian financial institution at one of its places of business, located in Quebec. These funds were in the form inter alia of corporate securities as well as certain securities representing precious metals. At the time the funds were advanced, the financial institution was informed that they were entrusted to it for deposit and safekeeping purposes. Nearly 10 of those individuals died after having entrusted the safekeeping of those assets to the financial institution. The heirs and legatees of these individuals are non-residents.
Following the opening of the accounts when the funds were deposited, the Canadian financial institution received no instructions from non-resident individuals during their lifetime, nor from their heirs and legatees following their death, as to the management of the assets in its custody. The financial institution only passively managed the funds by only accepting under a public offering of the units based on the default election in the offer, without exercising any discretionary management with respect thereto.
You wish to know whether the financial institution is a legal representative with control of the trust or estate property for the purpose of determining whether the arrangement with the financial institution constitutes an estate. In addition, you wish to know if the estate is resident in Canada because of the financial institution's functions.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 of May 17, 2002, it is the practice of the Canada Revenue Agency (CRA) not to issue written opinions on proposed transactions otherwise than by way of advance income tax rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, the determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
The definition of "trust" in subsection 104(1) of the Income Tax Act (the "Act") does not provide a basis for determining when an entity will be considered a trust for the purposes of the Act. Similarly, the definition of "trust" does not allow for a determination of whether there is an estate. At most, the definition establishes that an arrangement under which the trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property is deemed not to be a trust for the purposes of the Act. Whether there is a trust or an estate, as the case may be, must be determined on the basis of civil law or common law. Once it has been established that an estate (or trust, as the case may be) exists, it is necessary to consider who has control over the property of the estate.
In an estate, it will generally be the executor or liquidator who will be the legal representative with control of the estate's assets. The question is therefore whether the financial institution could also be a legal representative with control of the estate's assets. We find a definition of "legal representative" in subsection 248(1) of the Act. This definition reads as follows:
legal representative of a taxpayer means a trustee in bankruptcy, an assignee, a liquidator, a curator, a receiver of any kind, a trustee, an heir, an administrator, an executor, a liquidator of a succession, a committee, or any other like person, administering, winding up, controlling or otherwise dealing in a representative or fiduciary capacity with the property that belongs or belonged to, or that is or was held for the benefit of, the taxpayer or the taxpayer’s estate;
A financial institution would generally not be considered a legal representative controlling the estate's assets solely because of its role as depositary and custodian of certain estate assets. However, we cannot give you a definitive opinion in this regard in the situation you are presenting to us since it is essentially a question of fact.
As for the question of the residence of the estate, this is a question of fact that will likely be determined based on the residence of the legal representative who administers the estate or controls the estate's property, as explained in paragraphs 1 to 3 of Interpretation Bulletin IT-447. A review of the will or the legislation governing the deceased's property would make it possible to determine the name and residence of the legal representatives having control of the estate's property, who are generally the executors or liquidators. Paragraph 2 of Interpretation Bulletin IT-447 will make it possible to establish which among these, if there are several, is the person who is administering the estate or has control of the estate's property as well as the residence of the estate. For this purpose, the CRA will not take into account the depositary and custodial functions performed by a Canadian financial institution that would not otherwise be a legal representative with control of the estate's property.
We hope that these comments are of assistance.
Best regards,
Alain Godin
for the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
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