Words and Phrases - "disclaimer"
Lewski v Commissioner of Taxation, [2017] FCAFC 145
The Commissioner of Taxation denied a claimed loss carryforward of a trust which had declared a distribution of all its income for a particular year, as a result of which there was a substantial increase in the amount of the of income to be included in her hands. Over seven years later, she executed a purported disclaimer of her right to that distribution.
After finding that the resolution had not resulted in a current income inclusion to the taxpayer on other grounds, but in going on to find that the disclaimer was invalid, the Court first stated (at para. 141) that “In the present case, the particular legal issue concerns the acceptance of a trust distribution,” and “the question whether a donee is to be taken to have accepted a gift, or an object of a discretionary trust is taken to have accepted a distribution, is broadly similar,” and then stated (at para. 142):
Here, the applicant had handed over all of her financial affairs to [her husband] Mr Lewski. It was within the scope of Mr Lewski’s authority to receive knowledge of the relevant trust distributions. We consider that Mr Lewski was under a duty to inform the applicant of the distributions as they were material transactions that affected her financial position (including her potential liability to tax). There is no question that Mr Lewski was aware of the distributions, as he either made or participated in the making of the relevant resolutions. … Neither the applicant, nor Mr Lewski on her behalf, took any step to disclaim the distribution before 15 December 2015. In these circumstances … we consider the conclusion that the applicant was taken to have had knowledge of, and to have accepted, the gifts before 15 December 2015 to be consistent with the cases and principles discussed above.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Incurring of Expense | obligation to pay purchase price was incurred on agreement date rather than subsequent closing | 430 |
| Tax Topics - Income Tax Act - Section 104 - Subsection 104(24) | an alternate resolution that the taxpayer was not entitled to an income distribution if Revenue denied a trust deduction made her entitlement contingent and non-includible | 374 |
| Tax Topics - Income Tax Act - Section 104 - Subsection 104(13) | a trust income declaration that was subject to a tax contingency did not result in an income inclusion to the beneficiary | 149 |
| Tax Topics - General Concepts - Agency | knowledge of agent imputed to principal | 217 |
Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Beneficiaries Resident in Canada", Chapter 4 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016.
Requirements for valid disclaimer of income interest (p. 340)
A taxpayer who executes a valid disclaimer of an income interest in a trust is generally considered not to have acquired the income interest….In order-to constitute a valid disclaimer for these purposes, the CRA's position is that the refusal must occur within a reasonable time after the recipient becomes aware of the gift or interest and before the recipient accepts any funds or benefits in respect of the gift or interest. However, if die taxpayer accepts any funds from the trust in respect of die income interest or executes a disclaimer in respect of the income interest in favour of another- person, the taxpayer is considered to have acquired the income interest and therefore cannot execute a valid disclaimer. [fn 174: [S6-F2-C1], at paragraphs 1.13 to 1.15. The CRA's position in this regard appears to be inconsistent with judicial authority in Ontario. In Re Coulson, 1977 Can1.II 1060 (ONCA), the Ontario Court of Appeal held that an income beneficiary who had been receiving income from a trust on an annual basis could validly disclaim the income from her interest in the trust in a particular, taxation year, and then continue to receive the income in subsequent taxation years….]
[I]n Murphy Estate [2015 TCC 8]…[t]he court noted that a disclaimer is a refusal to accept an interest that has been bequeathed to a disclaiming party. Its effect is to void the gift as if the disclaiming party never received it. The gift becomes part of the estate of the deceased and the disclaiming party has no right to direct who is to receive the gift.
Biderman v. The Queen, 2000 DTC 6149, 2001 FCA 269 (FCA)
The taxpayer, who had tax debts on his death, made an "informal" disclaimer of his beneficial interest under the estate of his wife five days prior to her death (which was found to be invalid because the common law required that a disclaimer be made after the death of the legator) and, three years after her death, made a formal disclaimer. The formal disclaimer was found to operate as a surrender and release, rather than a disclaimer, because his conduct subsequent to her death was inconsistent with a disclaimer. Accordingly, the purported formal disclaimer acted as a transfer of property by him to the beneficiaries (his and her children).
Létourneau J.A. went on to note that because a disclaimer does not involve the vesting and divesting of property but, rather, operates by way of retroactive avoidance of a devise, s. 160 would not have applied if there had been a valid disclaimer.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) | conduct subsequent to death inconsistent with disclaimer | 150 |
Murphy Estate v. The Queen, 2015 TCC 8
An estate unsuccessfully argued that the effect of the settlement of some estate litigation pursuant to a consent order, which provided for the transfer of the interest in the deceased's RRSPs, by the children who otherwise would have received the RRSP assets, to the deceased's surviving spouse, was to retroactively access the rollover for RRSP transfers to a surviving spouse. In connection with noting that the children had not disclaimed their interests in the RRSPs, V. Miller J stated (at para. 33) that the effect of a disclaimer (being "a refusal to accept an interest which has been bequeathed to a disclaiming party") is "to void the gift as if the disclaiming party never received it."
See detailed summary under s. 146(8.8).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 146 - Subsection 146(8.8) | consent order for settlement of estate litigation did not have retroactive effect | 201 |