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: Does attribution apply to the income earned by a trust with beneficiaries under the age of 18 who are related to the transferor if the debt is transferred to the parents of the beneficiaries upon the death of the transferor?
Position: No, but section 80 may apply if any portion of the interest or principal payable on the loan is forgiven.
Reasons: Since the parent would not have transferred or loaned property to the trust, the conditions in 74.1(2) are not met.
XXXXXXXXXX 990287
A. Humenuk
Attention: XXXXXXXXXX
December 2, 1999
Dear Sirs:
Re: Attribution
This is in reply to your letter of February 1, 1999 in which you ask for our views on the application of subsection 74.1(2) of the Act to a particular fact situation.
Written confirmation of the tax implications applicable to a particular transaction or series of transactions is only given by the Canada Customs and Revenue Agency (CCRA) in respect of proposed transactions that are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R3 dated December 30, 1996 (available from our website at http://www.ccra-adrc.gc.ca). Questions concerning actual fact situations should be directed to your local tax services office. Although we are not able to comment specifically on the situation you describe, we can offer the following general comments.
Your question relates to the application of subsection 74.1(2) of the Act following the death of an individual (the "transferor") who lent property to a trust in which the transferor's grandchildren were beneficially interested. Although the grandchildren were under the age of 18, attribution did not apply during the lifetime of the transferor because the conditions described in subsection 74.5(2) of the Act were met throughout that period. In particular, the interest charged and paid on the loan was equal to or greater than the prescribed rate of interest at the time the loan was granted. As you noted, paragraph 15 of Interpretation Bulletin IT- 510, Transfers and Loans of Property made after May 22, 1985 to a Related Minor, states that subsection 74.1(2) of the Act does not apply to attribute any income to the transferor following the death of the transferor or the transferee. You ask whether the income of the trust will be attributed to the parent of the grandchildren who are beneficially interested in the trust if the debt owing by the trust is bequeathed to the parent of those grandchildren under the terms of the transferor's will and no further interest is paid on the loan.
Although the trust would be indebted to the parent under the same terms and conditions as it was to the transferor, the parent who acquires the debt as a consequence of the death of the transferor would not be a person who had transferred or loaned property to the trust. As a result, it is our view that the income of the trust would not be attributed to the parent who acquired the debt as a consequence of the death of the transferor. Please note, however, that section 80 may apply to the amount of any interest or principal of the debt that is forgiven by the parent.
While we trust the foregoing comments are useful they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R3 and are not binding on the CCRA in respect of any particular situation.
Yours truly,
T. Murphy
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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