Introduction

The purpose of a Chapter History page is to highlight any amendments to the information contained in a chapter of an income tax folio, including amendments to the information originally contained in an interpretation bulletin that has been cancelled and replaced with a folio chapter. It outlines amendments that have been made as a result of legislative changes and proposed legislative changes, precedential court decisions, as well as new or revised interpretations of the Canada Revenue Agency (CRA).

Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C., c. 945, as amended.

Update March 17, 2023

¶1.13 was amended to better reflect bijuralism by adding the following as the final sentence: “However, consideration should be given to whether the inclusion of such directions in the will is valid under the relevant provincial law and that the spouse trust has been validly constituted.” As well, the paragraph was amended in three places, in the English version only, to replace the word “may” with “might” to better communicate that the determination of whether certain provisions of a will are possible depends on how the will is drafted and the applicable provincial laws. Finally, the first sentence was also amended for readability purposes in the French version of the Chapter only.

The first sentence of ¶1.30 was amended in the French version only to better reflect the discretion that could be granted to the trustee.

Update February 3, 2022

General

Income Tax Folio S6-F4-C1, Testamentary Spouse or Common-law Partner Trusts, replaces and cancels Interpretation Bulletin IT 305R4, Testamentary Spouse Trusts.

In addition to consolidating the content of the former interpretation bulletin, general revisions have been made to improve readability. Any substantive technical and interpretive changes to the information outlined in the former interpretation bulletin are described below.

Legislative and other changes

Throughout the Chapter, all references to spouse have been changed to spouse and common-law partner based on the 2000 same-sex partner bill.

¶1.3 has been added to discuss the meaning of vested indefeasibly.

¶1.4 and 1.5 (formerly ¶2 of IT-305R4) have been expanded to include a reference to the exception in paragraph 70(6)(d.1) and to specify that a subsection 70(6.2) election is made on a property-by-property basis and cannot be made on a fraction of a single property.

¶1.7 has been added to highlight that a spouse trust cannot qualify as a graduated rate estate and to reflect the definition of estate as amended by S.C. 2013, c. 40, s. 89.

¶1.8 (formerly ¶4 of IT-305R4) has been revised to reflect several legislative amendments to subsection 252(3) including S.C. 2013, c. 34, s. 361(1), S.C. 2012, c. 31, s. 56(1), S.C. 2008, c. 28, s. 35(1), S.C. 2005, c. 33, s. 12(3), S.C. 2003, c. 15, s. 89(1), and S.C. 2000, c. 19, s. 69(1). The paragraph has also been revised to reflect the repeal of subsection 252(4) by S.C. 2000, c. 12, s. 141(2).

¶1.9 and 1.10 have been added to reflect the definition of common law partner in subsection 248(1).

¶1.18 has been added to highlight that subsection 70(6) does not apply to substituted property.

¶1.20 (formerly ¶13 of IT-305R4) has been revised to reflect several legislative amendments to subsection 108(3) including S.C. 2013, c. 34, s. 12(1) and S.C 2001, c. 17, s. 83(10).

¶1.23 has been added to discuss the impact of a discretionary power granted to a trustee of a trust to distinguish income and capital items.

¶1.24 and 1.25 (formerly ¶14 of IT-305R4) have been revised to reflect several legislative amendments to subsection 108(4) including S.C. 2017, c. 33, s. 37(3), S.C. 2001, c. 17, s. 83(11), S.C. 2000, c. 12, Sch. II, s. 1(z.3), S.C. 2000, c. 12, s. 144, and S.C. 2000, c. 12, s. 146.

¶1.26 has been added to discuss the impact of a mere existence of a power to encroach on the capital or income of the trust for the benefit of persons other than the spouse or common-law partner, prior to the spouse’s or common-law partner’s death.

¶1.27 to 1.30 have been added to highlight that any discretion in respect of the distribution of all or part of the income of the trust must be solely in the hands of the spouse or common-law partner.

¶1.31 has been added to consider a trust under which the income beneficiary’s entitlement to the income of the trust would be limited to a certain percentage of the value of the trust property.

¶1.33 has been added to discuss a duty to fund a life insurance policy held by the spouse trust on the life of the spouse or common-law partner out of trust capital or trust income.

¶1.39 (formerly ¶19 of IT-305R4) has been revised to remove the remarriage clause example as it is not an example of an obligation. Such a situation would not meet the requirements of subsection 70(6) since it would result in someone other than the spouse being entitled to income or capital of the trust before the spouse’s or common-law partner’s death.

¶1.43 (formerly ¶20 of IT-305R4) has been revised to reflect the legislative amendment to subparagraph 70(8)(b)(ii) by S.C. 2001, c. 17, s. 208(2).

¶1.46 (formerly included in ¶20 of IT-305R4) has been revised to reflect the legislative amendment to paragraph 70(8)(a) by S.C. 2001, c. 17, s. 208(1).

¶1.48 (formerly ¶21 of IT-305R4) has been expanded to discuss subparagraph 70(7)(b)(iv).

Examples 1 and 2 (formerly ¶20 to ¶22 of IT-305R4) have been updated, expanded and improved to provide a better demonstration of the concepts being explained.

¶1.59 (formerly the Note after ¶28 of IT-305R4) has been revised to provide a reference to Guide T4011, Preparing Returns for Deceased Persons.

¶1.63 and 1.64 (formerly ¶33 of IT-305R4) have been revised to reflect the provisions of the Canada-US Treaty.

¶1.65 to 1.67 have been added to discuss subsections 104(4) and 104(5), paragraph 104(13.4)(a), and the definition of exempt property.

¶1.68 (formerly ¶8 of IT-305R4) has been revised to provide clarity, by more closely reflecting the actual wording of subsection 104(4).

¶1.69 has been added to discuss paragraphs 104(13.4)(b) and (b.1) and to include a reference to Guide T4011.