22 September 1997 External T.I. 9707305 - RENT FREE USE OF TRUST PROPERTY

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:

1) Will there be a benefit under subsection 105(1) for the rent-free use of personal-use property by a minor beneficiary and the minor's parent where that property owned by the trust is acquired for the benefit of the minor beneficiary?

2) Will a taxable benefit under subsection 105(1) arise to a parent solely as a consequence of a trust paying the personal and living expenses of that child, including the "necessaries of life"?

Position:

1) The administrative position expressed in Q#31 and #69 of the Revenue Canada Round Table of the 1988 and 1989 Conference Report, respectively, represents our Department's position.

2) No.

Reasons: see 970657

970730
XXXXXXXXXX C.R. Bowen

Attention: XXXXXXXXXX

September 22, 1997

Dear Sirs:

Further to our letter dated September 20, 1995, concerning the application of subsection 105(1) of the Income Tax Act (the "Act"), our review has recently been completed and our opinion is outlined below.

Our Opinion

Our position on whether a taxable benefit arises from the rent-free use of personal-use property owned by a trust remains as indicated in the responses to questions 69 and 31 of the Revenue Canada Round Tables of the 1988 and 1989, respectively, Conference Reports of the Canadian Tax Foundation. In summary, those responses state that although it is the Department's position that the use of trust property by a beneficiary of the trust constitutes a benefit for the purposes of subsection 105(1) of the Act, in the case of personal-use property owned by a trust, the Department will generally not assess a benefit for the use of that property. In this regard, personal-use property of a trust will, in accordance with the definition in section 54 of the Act, include property (such as homes, cottages, boats, cars, etc.) owned primarily for the personal use or enjoyment of a beneficiary of the trust or any person related to the beneficiary.

Consequently, where, pursuant to the terms of the trust indenture or will, a trust owns personal-use property for the benefit, enjoyment or personal use of a beneficiary who is a minor, our position is that a taxable benefit under subsection 105(1) of the Act will generally not be assessed to that child for the rent-free use of the property by the child. Where the child's parent (who may or may not be a beneficiary of the trust) also uses that property, a taxable benefit will generally not be assessed to the parent.

In addition, it is our opinion that a taxable benefit under subsection 105(1) of the Act will not arise to the parent of a minor who is a beneficiary of a trust as a consequence of the trust (in accordance with the terms of the trust indenture or will) either: 1) owning personal-use property for the benefit of the child, or 2) paying the personal and living expenses of that child (i.e., those costs incurred for the support, maintenance, care, education, advancement and enjoyment of the child), including the child's "necessaries of life", that the child's parent would otherwise have been legally obligated to incur for the support and maintenance of the child pursuant to applicable provincial and/or federal statutes.

This opinion is provided in accordance with paragraph 22 of Information Circular 70-6R3 dated December 30, 1996.

Yours truly,

for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch