PERSONAL TRUST – BENEFICIARY CONTRIBUTIONS

careful review of any proposed contributions to a Trust

In a July 30, 2015 Technical Interpretation (2015-0596841E5, Kohnen, Phillip, 613-670-8916), CRA was asked whether voluntary contributions of capital to a Trust by its beneficiaries, in the same proportion as their fixed income and capital interests in the Trust, would cause it to lose its status as a Personal Trust.

CRA noted that the definition of a Personal Trust (Subsection 248(1)) requires that no beneficial interest was acquired for consideration payable to the Trust, or anyone else who has made a contribution to the Trust. CRA indicated that the additional contributions of capital to the Trust would cause it to lose its status as a Personal Trust.

Editors’ Comment
Many rules vary for Personal Trusts, including:

  • Property of a Personal Trust resident in Canada can commonly roll out to Canadian-resident beneficiaries at cost for income tax purposes (Subsection 107(2)).
  • The definition of Qualifying Small Business Corporation Shares (Subsection 110.6(1)) generally restricts their owners to individuals and Personal Trusts.
  • An interest in a Personal Trust is not typically deemed disposed of on cessation of Canadian residency (Paragraph 128.1(10)(j)).
  • Trusts, other than Personal Trusts, cannot access the principal residence exemption (Subsection 54(1) definition of Principal Residence).
  • Special provisions, generally relieving in nature, apply to determine the Adjusted Cost Base of a capital interest in a Personal Trust.
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