Chapter History S6-F2-C1, Disposition of an Income Interest in a Trust

Introduction

The purpose of this Chapter History page is to highlight any amendments to the information contained in an interpretation bulletin that is now reflected in a chapter of an income tax folio as well as to identify any subsequent amendments to a folio chapter. It outlines amendments that have been made as a result of legislative changes and proposed legislative changes, precedential court decisions, as well as new or revised interpretations of the Canada Revenue Agency (CRA).

Update November 25, 2015

Minor changes have been made to improve the usability of the income tax folios:

• the Summary section has been moved to the top of each folio chapter to be more immediately visible and helpful to readers;
• the Application and Reference sections have been moved to the end of the Chapter which is more appropriate for administrative content of this nature.  However, these sections now appear in the Table of contents for easy access;
• the statement that folios are only available in electronic format has been moved to the end of the Application section; and
• the words “as promulgated under the Act” in connection with the Income Tax Regulations have been removed from the Application section, in the interest of using plain language.

Update March 17, 2015

¶1.2 is revised for readability by replacing the words “or was at any time a unit trust after 1999” in the last sentence with “or that was a unit trust at any time after 1999”. This change affects the English version only. The French version has also been revised by replacing the words “a fait un apport à la fiducie” contained in the 2nd bullet with “effectue un apport à la fiducie”. This revision is made to more closely reflect the wording of the Act.

¶1.2 is further revised by adding a comment that “For the 2016 and subsequent tax years, the reference in ¶1.2 to 'testamentary trust' will be replaced with 'graduated rate estate', and the reference to 'an inter vivos trust' will be replaced with 'a trust'”. This is to reflect the legislative amendments made by S.C. 2014, c. 39, s. 71(3) and (4) (formerly Bill C-43).

¶1.6 of the French version only has been revised. Firstly, the phrase “participation d’un bénéficiaire au revenu de la fiducie” in the 2nd sentence is replaced by “participation au revenu d’un bénéficiaire de la fiducie” to more closely reflect the wording of the Act. Secondly, the last sentence “Un tel bénéficiaire n’a donc pas de produit de disposition ni de revenu à inclure dans son revenu […]” is replaced by “En conséquence, un tel bénéficiaire n’aura pas de produit de disposition et aucun montant ne sera à inclure dans son revenu […]” to improve readability.

¶1.8 is revised to add a comment that “For the 2016 and subsequent tax years, subparagraph 69(1)(b)(ii) will be applicable to any disposition by way of a gift.”  This is to reflect the legislative amendments made by S.C. 2014, c. 39, s. 12(1) (formerly Bill C-43).

Update September 19, 2014

General

Income Tax Folio S6-F2-C1, Disposition of an Income Interest in a Trust replaces and cancels Interpretation Bulletin IT-385R2, Disposition of an Income Interest in a Trust. 

In addition to consolidating the content of the former interpretation bulletin, general revisions have been made to improve readability. Any substantive technical and interpretive changes to the information outlined in the former interpretation bulletin are described below. Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended.

Legislative and other changes

¶1.1 (formerly included in ¶1 of IT-385R2) is revised to reflect the legislative amendment made by S.C. 2001, c. 17, s. 83(3) to the definition of income interest. The definition was amended to provide that, after 1999, an income interest also includes a right (other than a right acquired before 2000 and disposed of before March 2000) to enforce payment by the trust that arises as a consequence of a right that is an income interest.

¶1.2 (formerly included in ¶1 of IT-385R2) , is revised to reflect the legislative amendments made by S.C. 2001, c. 17, s. 188(4) and S.C. 2009, c. 2, s.76(2) to the definition of a personal trust in subsection 248(1). The first amendment provided that a trust is disqualified from personal trust status if it is, or was at any time after 1999, a unit trust. This amendment applies after December 23, 1998. The second amendment clarified that a contributor includes a partnership, for purposes of the rule that disqualifies a trust from personal trust status if a beneficial interest has been acquired for consideration payable in any way to a contributor to the trust. This amendment applies after July 14, 2008.

¶1.3 has been added to discuss the effect of the amendment made to the definition of personal trust by S.C. 2001, c. 17, s. 83(12). The rule within the definition that generally ensures that one person (or two or more related persons) can make contributions to a trust and retain an interest under the trust without the prohibition on consideration being considered to apply was removed and provided in subsection 108(7). This amendment is applicable after December 23, 1998.

¶1.4 (formerly ¶3 of IT-385R2) is revised to reflect the legislative changes to the definition of capital interest made by S.C. 2001, c. 17, s. 83(2). This amendment applies after 1999.

¶1.5 - 1.8 (formerly included in ¶4 of IT-385R2) are revised and expanded to reflect the legislative amendments made by S.C. 2009, c. 2, s. 76(2) with respect to the application of subsection 106(2), effective for tax years after 1999.

¶1.9 (formerly included in ¶6 of IT-385R2) is revised to clarify the operation of subsection 106(3).

¶1.10 –1.15 (formerly included in ¶7 - 9 of IT-385R2) are revised and expanded to explain the application of subsection 106(2) to dispositions as a result of disclaimer, release or surrender.

¶1.16 has been added to reflect the legislative changes made by S.C. 2001, c. 17, s. 82(1) with respect to a qualifying disposition. The amendment applies to dispositions that occur after December 23, 1998.

¶1.17 has been added to explain the tax consequences on the disposition of an income interest by a non-resident beneficiary.

¶1.18 – 1.21 (formerly included in ¶10 of IT-385R2) are expanded to discuss the application of subsection 106(1). It also reflects the legislative amendment to subsection 106(1.1) by 2001, c. 17, s. 79(1), applicable to tax years after 1999.

The scenarios in Example 2 have been added to illustrate the operation of subsections 106(2) and 106(1).