Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed
to be correct at the time of issue, may not represent the
current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Surrenders for no consideration of an income interest in a
pre-1972 spousal trust and the application of subsections
106(2) and 107(4) of the Act.
Position TAKEN:
No proceeds of disposition for the purposes of subsection
106(2) of the Act. Subsection 107(4) of the Act is not
applicable to a capital distribution from a pre-1972 spousal
trust.
Reasons FOR POSITION TAKEN:
Files #3-920536 and #3-933715. IT-385R2 paragraph 8 and 9.
Lloyd Raphael's book page 496 and following.
XXXXXXXXXX 5-940219
Attention: XXXXXXXXXX
April 18, 1994
Dear Sirs:
Re: Subsections 106(2) and 107(2) of the Income Tax Act ("the Act")
This is in reply to your letter dated January 21, 1994 wherein you requested an interpretation regarding the application of the above mentioned subsections of the Act where a spouse renounces or releases his/her income interest in a pre-1972 spousal trust for no consideration and where he/she does not direct the manner in which the income interest is to be distributed. We apologize for the delay in responding to your request.
As explained in Information Circular 70-6R2, it is not the Department's practice to comment on proposed transactions other than in the form of advance income tax rulings.
Taxpayers seriously contemplating proposed transactions are best advised to seek a formal ruling, submitting a complete
statement of facts and issues as well as copies of all relevant documents.
Should your situation involve completed transactions, you should submit all relevant facts and documentation to the appropriate taxation district office for their views. We are therefore not in a position to give you a definite response as to the application of the provisions of the Act. However, we can offer you the following general comments which may be
of assistance although, in certain circumstances, they may not be appropriate to your specific situation.
We concur your views that according to paragraph 9 of Interpretation Bulletin IT-385R2, where a taxpayer for no consideration validly surrenders his/her income interest in a trust and does not direct the manner in which the income
interest is to be distributed, he/she will not be considered to have received any proceeds of disposition for the purposes of subsection 106(2) of the Act. In addition, it is our opinion that a distribution of trust's assets, pursuant to such a release, by the trustees to the remaining capital beneficiaries will not result in any income inclusion by virtue of subsection 106(2) of the Act.
We also agree with your interpretation that subsection 107(4) of the Act does not apply to pre-1972 spouse trusts that come within paragraph 104(4)(a.1) of the Act and as described in paragraph 108(1)(f.2) of the Act.
Furthermore, we share your opinion that the deemed disposition found in subparagraph 104(4)(a.1)(i) of the Act should not be applicable if no trust exists immediately before the spouse's death.
Unless as otherwise stated all references to statute are to the Income Tax Act (S.C. 1970-71-72,c.63 as amended) consolidated to June 10, 1993.
The above comments are an expression of opinion only and, as explained in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.
We trust that these comments will be of assistance to you.
Yours truly,
for Acting Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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