2017-0722381R3 Variation to add a protector to the agreement

Principal Issues: 1. Whether there will be a resettlement of the Trust or a disposition of the assets held by the Trust as a result of the amendment of the Trust Agreement. 2. Whether there will be a disposition of the income or capital interests of any beneficiary of the Trust as a result of the amendment of the Trust Agreement for purposes of subsections 106(2) and 107(1) and the definition of “disposition” in subsection 248(1) of the Income Tax Act.

Position: 1. No. 2. No.

Reasons: See below. Changes did not result in a fundamental change to the beneficiaries’ rights or the terms of the trust.

Author: XXXXXXXXXX
Section: 106(2), 107(1), 248(1)

XXXXXXXXXX                                                                                                                                        2017-072238

XXXXXXXXXX, 2019

Dear XXXXXXXXXX:

Re:   XXXXXXXXXX 
        Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above named taxpayer.  We also acknowledge the information provided in subsequent correspondence and during our various telephone conversations in connection with your request.

We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in the ruling request is:

(i)   in an earlier return of the taxpayer or a related person;

(ii)  being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the taxpayer or a related person;

(iii) under objection by the taxpayer or a related person;

(iv)  before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or

(v)   the subject of a Ruling previously issued by this Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the “Act”) and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purposes of the proposed transactions is as follows:

DEFINITIONS

In this letter, unless otherwise specified, all references to monetary amounts are in Canadian dollars and the following terms have the meanings specified:

“ACB” means adjusted cost base, as defined in Section 54;

“Beneficiaries” has the meaning ascribed to that term in the Trust Agreement;

“CCPC” means a Canadian-controlled private corporation, as defined in subsection 125(7);

“Corporation” means XXXXXXXXXX;

“Division Date” has the meaning ascribed to that term in the Trust Agreement;

“Inter vivos trust” has the meaning assigned by subsection 108(1);

“Paragraph” means a numbered paragraph in this letter;

“PUC” means paid-up capital, which has the meaning assigned by subsection 89(1);

“Settlor” means XXXXXXXXXX;

“Trust” means XXXXXXXXXX;

“Trust Agreement” means the Trust Agreement of the Trust established on XXXXXXXXXX; and

“Trustees” means the trustees of the Trust and “Trustee” means any one of the Trustees of the Trust.

FACTS

1.    The Trust was established on XXXXXXXXXX.  The tax account number for the Trust is XXXXXXXXXX.  The Trust files its returns at XXXXXXXXXX and deals with the XXXXXXXXXX Tax Services Office.  Its mailing address is XXXXXXXXXX.

2.    The Trust is a discretionary inter vivos trust which was settled by XXXXXXXXXX.  The Trust is governed by the Trust Agreement.  The current Trustee of the Trust is XXXXXXXXXX.

3.    The Capital, Income, and Primary Beneficiaries of the Trust are:

a)    XXXXXXXXXX;
b)    the lawful spouse of XXXXXXXXXX;
c)    the children of XXXXXXXXXX;
d)    any current or future grandchildren of XXXXXXXXXX; and
e)    any corporation owned by one or any combination of the said capital and income beneficiaries (except the Corporation).

4.    Pursuant to XXXXXXXXXX of the Trust Agreement, the Trustee has the ability to appoint additional or replacement Trustees of the Trust.  In the event of the Trustee’s death, the executor of the estate of the Trustee would assume this power.  In the event of the Trustee’s mental incapacitation, the person named as the Trustee’s Power of Attorney would assume this power.

5.    The Trust Agreement can be amended at any time while the Settlor is alive, provided that the amendment is approved by the Settlor and the majority of the Trustees, and the amendment does not change the beneficiaries, any beneficiary’s beneficial interest in the Trust, and/or the person entitled to appoint Trustees.  As of this date, the Settlor is alive and has the mental capacity to approve any amendment to the Trust.

6.    The assets currently owned by the Trust are the XXXXXXXXXX and XXXXXXXXXX Class A Voting Common Shares of the Corporation.  The Corporation, a CCPC, currently owns marketable securities, investments in real estate and private companies and partnerships, and has made interest-bearing advances to various businesses.  The ACB and PUC of the XXXXXXXXXX Class A Voting Common Shares held by the Trust are $XXXXXXXXXX.  The estimated value of the Corporation is approximately $XXXXXXXXXX.

7.    The Trustee has full discretion to allocate the income and/or capital of the Trust to any of the Beneficiaries in any amount desired as the Trustee sees fit.

8.    It is the intention of the Trustee to distribute the Trust assets on a discretionary basis pursuant to the Trust Agreement prior to the XXXXXXXXXX of the Trust on XXXXXXXXXX.

PROPOSED TRANSACTIONS

9.    Upon receipt of approval from the Court of Queen’s Bench of any consent required pursuant to XXXXXXXXXX of the Trustee Act (XXXXXXXXXX), the Trustee shall amend XXXXXXXXXX of the Trust Agreement as follows:

(i)   By adding new XXXXXXXXXX to allow for the appointment of his spouse as the replacement Trustee of the Trust in the event of his passing or mental incapacitation.

(ii)  By adding new XXXXXXXXXX to allow for the appointment of XXXXXXXXXX a as the replacement Trustee of the Trust in the event of the passing or mental incapacitation of both himself and his spouse.

(iii) By adding new XXXXXXXXXX to allow for the insertion of the position of Protector for the Trust in the event that any trust company becomes Trustee of the Trust.  The Protector would be one of the following XXXXXXXXXX, based on who was alive at the time the Protector was named, and would be named in the following order: XXXXXXXXXX.  The Protector would only have the power to replace the appointed trust company (as the replacement Trustee) with another reputable trust company under the following circumstances: the Trustee fees being charged by the appointed trust company becomes too high and/or the appointed trust company not managing the assets of the Trust in the best interest of the Beneficiaries.

PURPOSES OF THE PROPOSED TRANSACTIONS

10.   Currently, XXXXXXXXXX.

11.   However, XXXXXXXXXX also wants to be sure that XXXXXXXXXX is held accountable to ensure they do not overcharge the Trust for their services and/or improperly manage the assets to the detriment of the remaining Beneficiaries of the Trust.

12.   As the Trust Agreement is currently written, in the event that XXXXXXXXXX, XXXXXXXXXX could not be replaced as the Trustee of the Trust.  Therefore, there would be no accountability by the trust company.  However, by creating the position of Protector, a trusted family member would have legal standing to hold the trust company accountable and replace it with another trust company if they had grounds to do so.  This amendment would allow XXXXXXXXXX to successfully complete his estate plan for his children and grandchildren.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purposes of the proposed transactions, and provided further that the proposed transactions are carried out as described above, our rulings are as follows:

A.    The proposed amendments to the Trust in Paragraph 9 above will not, in and by themselves, result in a resettlement of the Trust or a disposition by the Trust of its property for purposes of the Act.

B.    The proposed amendments to the Trust in Paragraph 9 above will not, in and by themselves, result in a disposition by any Beneficiary of all or part of his, her or its beneficial interest in the Trust for purposes of the Act.

CAVEATS

Except as expressly provided herein, the above rulings do not imply acceptance, approval or confirmation of the income tax implications of the facts and proposed transactions.  In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly, the determination of:

(i)   the ACB or PUC of any property;
(ii)  the fair market value of any property;
(iii) whether the Corporation is a CCPC;
(iv)  the tax consequences in respect of any past or future transactions (other than those proposed in Paragraph 9 above) that may have been or may be undertaken by the Trust, the Settlor, the Trustee, any Beneficiary, or any person or partnership related to any of the aforementioned persons.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R8, Advance Income Tax Rulings and Technical Interpretations, and are binding on the Canada Revenue Agency provided that the proposed transactions are completed within 6 months of the date of this letter.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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