2018-0779201R3 Variation of Trust Deed

Principal Issues: Whether the variation of the trust deed results in a disposition of the assets of the trust or the disposition of any beneficiary's interest.

Position: No disposition.

Reasons: There is no disposition of the assets of the trust since the terms of the trust allow the trustees to vary the trust deed in the manner proposed. There is no disposition of the beneficiaries' interest as no person becomes or ceases to be a beneficiary and there is not a significant change in the rights of the beneficiaries.

Author: XXXXXXXXXX
Section: 248(1) "disposition"

XXXXXXXXXX                                                  2018-077920

XXXXXXXXXX, 2018

Dear XXXXXXXXXX:

Re:  XXXXXXXXXX
        Advance Income Tax Ruling

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 involved, none of the issues involved in this ruling request:

(i)   is in a previously filed tax return of the taxpayer or a related person;

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

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

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

Further, the above-referenced taxpayer represents that the Proposed Transaction will not result in it or any related person being unable to pay its outstanding tax liabilities.

Unless otherwise expressly stated, every reference herein to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended from time to time and consolidated to the date of this letter (the “Act”).

DEFINITIONS

“Beneficiaries” shall have the meaning ascribed to that term in the Trust Deed;

“CRA” means the Canada Revenue Agency;

“disposition” means a disposition as defined in subsection 248(1);

“Family” means the set of individuals consisting of XXXXXXXXXX, his wife XXXXXXXXXX, as well as their issue and other individuals described in the definition of this term in the Trust Deed;

“Paragraph” means a numbered paragraph in this advance income tax ruling;

“Proposed Transaction” means the transaction described in Paragraph 6;

“Settlor” means XXXXXXXXXX;

“Trust” means the XXXXXXXXXX;

“Trust Deed” means the Declaration of Trust established XXXXXXXXXX under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX and subsequent amendments thereto;

“Trustees” means the trustees of Trust; and

“United States Person” has the meaning ascribed to that term in the Trust Deed.

Our understanding of the facts, Proposed Transaction and the purpose of the Proposed Transaction is as follows:

FACTS

1.    Trust was established XXXXXXXXXX under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX.

2.    Trust files its returns at the XXXXXXXXXX Tax Centre and deals with the XXXXXXXXXX Tax Services Office.  Its mailing address is XXXXXXXXXX.

3.    The Trust Deed provides for discretionary allocation and distribution of the net annual income and capital of Trust to the Beneficiaries within certain parameters.

4.    The Beneficiaries are the members of Family, with members who are United States Persons at any time in a calendar year excluded as Beneficiaries in respect of that year.  XXXXXXXXXX children of XXXXXXXXXX are United States Persons.

5.    The relevant exclusion portion in the definition of Beneficiaries is set forth in the penultimate paragraph of section XXXXXXXXXX of the Trust Deed which provides as follows:

Provided, however, that notwithstanding the provisions of this Trust, if at any time and from time to time in a calendar year an individual who would otherwise be a Beneficiary (as defined hereunder) is a United States Person (as such term is hereinafter defined), then such individual shall not be a Beneficiary hereunder for that calendar year and such individual shall have no right or entitlement to be considered for any appointment nor to any distribution of income or capital under any provision of this Trust until such time as such individual shall cease to be a United States Person for a full calendar year.

PROPOSED TRANSACTION

6.    The Trustees propose to replace the penultimate paragraph of section XXXXXXXXXX of the Trust Deed with the following paragraph:

Provided, however, that notwithstanding the provisions of this Trust, if at any time and from time to time in a calendar year an individual who would otherwise be a Beneficiary (as defined hereunder) is a United States Person (as such term is hereinafter defined) then such individual shall not be a Beneficiary hereunder for that calendar year and such individual shall have no right or entitlement to be considered for any appointment nor to any distribution of income or capital under any provision of the Trust until such time as such individual shall cease to be a United States Person for a full calendar year and the same shall apply mutatis mutandis to any individual who was formerly a United States Person if any such appointment or distribution would or may give rise to any United States federal or state tax liability to such former United States Person.

PURPOSE OF THE PROPOSED TRANSACTION

7.    The purpose of the Proposed Transaction is to clarify that no person who was formerly a United States Person may be allocated, vested or distributed income or capital in the event that any such allocation, vesting or distribution may give rise to a United States federal or state income tax liability to such person.  Furthermore, the Proposed Transaction seeks to clarify that a Beneficiary is excluded from an allocation or distribution that was earned in one year but distributable in another year if the Beneficiary either became or ceased to be a United States Person in the interim and if that allocation or distribution would or may result in United States federal or state income tax.

ADDITIONAL INFORMATION

8.    No person who is currently a Beneficiary will cease to be a Beneficiary and no person who is currently not a Beneficiary will become a Beneficiary solely as a result of the Proposed Transaction.

9.    A former United States Person would continue to be a Beneficiary of Trust and eligible to receive allocations or distributions of income or capital that would not be subject to United States federal or state income tax once they have ceased to be a United States Person for a full calendar year.

10.   The Trustees shall be advised in writing by an advocate or solicitor that it would be expedient for the purpose of the Trust Deed that the Proposed Transaction should be completed.

11.   The Proposed Transaction will not result in a termination of Trust under the laws of the Province of XXXXXXXXXX.

12.   The Proposed Transaction is consistent with the original intention of the Settlor.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, Proposed Transaction, purpose of the Proposed Transaction, and additional information and provided further that the Proposed Transaction is carried out in a legally effective manner as described above, our rulings are as follows:

A.    The Proposed Transaction will not, in and by itself, result in a disposition by Trust of its property for purposes of the Act.

B.    The Proposed Transaction will not, in and by itself, result in a disposition of all or any part of the interest in Trust of any of the Beneficiaries.

COMMENTS

Except as expressly stated, this advance income tax ruling does not imply acceptance, approval or confirmation of any other income tax implications of the facts or Proposed Transaction described herein.  For greater certainty, in regards to this letter, the CRA has not considered, confirmed or made any determination in respect of:

i)    whether the amendment to the Trust Deed, described herein as the Proposed Transaction, will result in the termination of Trust under the laws of the province of XXXXXXXXXX;

ii)   the tax consequences of any amendments made to the Trust Deed before the date of this letter;

iii)  whether Article XXXXXXXXXX of the Trust Deed provides the Trustees with the power to complete the Proposed Transaction; and

iv)   any income tax consequences relating to the facts or Proposed Transaction described herein other than those specifically described in the rulings given above.

The above advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given, subject to the general limitations and qualifications set out in Information Circular 70-6R8 Advance Income Tax Rulings and Technical Interpretations, dated November 1, 2018, and are binding on the CRA provided that the Proposed Transaction is completed within six months of the date of this letter.

Yours truly,

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

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