Subsection 73(1) - Inter vivos transfers by individuals
Administrative Policy
28 June 2012 T.I. 2011-0427871E5 F
Mr and Mrs X were the members of a farming partnership. Upon their separation the partnership began renting the land.
If the partnership were wound up as described in s. 98(3) with Mrs X transferring her undivided interest in the land to Mr X, the rollover in s. 73(1) might apply if the land were capital property.
June 1995 T.I. 950501 (C.T.O. "Meaning of 'entitled to receive'")
"The phrase 'entitled to receive' all of the income of the trust means to have a legal right to enforce payment of that income. For a spouse to have a legal right to enforce payment of all of the income of the trust, it is our opinion that discretion to receive all or part of the income of the trust must be solely in the hands of the spouse beneficiary ... . If, however, the trustee(s) of a trust may, under the terms of the trust agreement, restrict the payment to the spouse of any portion of the trust's income it is our view that the spouse is not 'entitled to receive' all the income ... . Our comments above would not change if the taxpayer's spouse were the sole trustee ... ."
5 April 1991 T.I. (Tax Window, No. 2, p. 27, ¶1196)
Where a spouse obtains an option to acquire a property from the other spouse and exercises the option after divorce, s. 73(1)(b) does not apply because the exercise of the option does not constitute a settlement of that right as envisioned by s. 73(1)(b). Where a spouse transfers property to the other spouse on the condition of being granted an option to reacquire the property after divorce, the original transfer will qualify, but not a subsequent transfer pursuant to the option.
Subsection 73(1.1) - Interpretation
Cases
Re Schroepfer (1985), 12 DLR (4th) 613 (Sask QC)
It was suggested that the s. 73(1) rollover would be available by virtue of s. 73(1.1) if a court decree made pursuant to the Matrimonial Property Act (Saskatchewan) merely specified that the taxpayer's spouse was entitled to a certain percentage of designated matrimonial property, and quantified the amount thereof, and the taxpayer then transferred assets, selected by him out of the pool of matrimonial assets, to the spouse to the extent of her interest as quantified.
Subsection 73(1.01) - Qualifying transfers
Paragraph 73(1.01)(c)
Administrative Policy
6 May 2014 May CALU Roundtable Q. , 2014-0523331C6
Easingwood v. Cockroft, 2013 BCCA 182, found that an Attorney under a general power of attorney could establish an inter vivos trust on behalf of the grantor of the power. If an Attorney creates an alter ego or joint partner trust for the benefit of the grantor of the power, and transfers capital property of the grantor to the trust, will s. 73(1.01) apply? CRA responded:
… Easingwood does not stand for the general proposition that an Attorney may create such trusts for the grantor of a Power of Attorney for Property. … CRA would expect that an Attorney that is contemplating the creation of an alter ego trust would seek the affirmation of the applicable court that the particular terms of the Power of Attorney for Property provide for such a power and that the terms of the proposed trust conform with the terms of the existing will and any other relevant agreements.
16 June 2014 STEP Roundtable Q. , 2014-0523031C6
The settlor of an inter vivos trust is entitled to receive all the trust income during his or her lifetime and, if survived by his or her spouse or common-law partner, such spouse or partner is entitled to all such income until death. Does this trust satisfy the requirement that the settlor and spouse/partner be "entitled" in "combination with the other" to receive all the trust income. CRA stated:
[I]f the terms of the trust provide that the taxpayer who transferred property to the trust was entitled to receive all of the income of the trust during his or her lifetime and the surviving spouse or common-law partner was only entitled to receive the trust's income after the death of the taxpayer and no other person could, before the later of those deaths receive or otherwise obtain the use of any of the income or capital of the trust, this in and of itself, would not prevent the trust from qualifying as a "joint spousal or common-law partner trust".
25 June 2014 T.I. 2012-0469331E5 - Blind Trust
Upon being appointed to a public office an individual was required to settle a blind trust of which he was the beneficiary. What are the consequences of his death?
Assuming the blind trust was a trust, a transfer of capital property to the blind trust would be treated as a disposition of the property at fair market value, unless its terms satisfied the conditions in ss. 73(1.01)(c)(ii) and 73(1.02), in which case the transfer would qualify for the 73(1) rollover and the property would generally be subject to deemed disposition under s. 104(4)(a) at fair market value at the time of the settlor's death. These conditions are:
- the settlor and the trust are resident in Canada at the time of the transfer;
- only the settlor is entitled to receive or use all of the income or capital of the trust arising during the settlor's lifetime;
- either the settlor has attained the age of 65 at the time the trust was created or the transfer of property to the trust does not result in a change of beneficial ownership in the property;
- no person other than the settlor may have any absolute or contingent right as a beneficiary under the trust; and
- the trust does not make an election under s. 104(4)(a)(ii.1).
Subsection 73(3) - When subsection (3.1) applies
Administrative Policy
11 June 2015 T.I. 2014-0522641E5 F - Usufruct
A father, who has carried on a farming business for a number of years, grants the bare ownership of the property for consideration to his son while retaining rights as the usufructuary. He continues to exploit the farm land and the, subsequently transfers his rights as usfructuary to his son for a stipulated sum. Do ss. 73(3) and 73(3.1) apply to the transfer of the bare ownership to the son?
After paraphrasing s. 248(3)(a), CRA stated (TaxInterpretations translation):
[T]he property which is transferred to the son is an interest in a deemed trust. … [T]he condition [in s. 73(3)(c)] is not satisfied when the taxpayer transfer a property described in paragraph 73(3)(c) to a trust.
After referring to IT-268R4, para. 13, CRA stated:
[T]he nature of a usufruct as well as the rights and obligations of usufructuary and bare owner are incompatible with such requirements.
See summaries under s. 108(7) and s. 110.6(1) – qualified farm or fishing property.
IT268R4 ARCHIVED - "Inter Vivos Transfer of Farm Property to Child" 15 April 1996
Trusts for Minors
13. A parent may transfer property described in subsection 73(3)… or 73(4)… to a trust solely for the benefit of his or her minor child. However, for property transferred to such a trust to qualify for a rollover under either of those subsections the following additional conditions must be met:
(a) the trust must be irrevocable;
(b) the terms of the trust must provide for the property to be held in trust for the exclusive benefit of the child and there must not be any trust provision which could have the effect of depriving the child of any rights as the beneficial owner of the property; and
(c) the terms of the trust must provide for the distribution of the property to the child absolutely upon reaching a certain age and for the distribution of that property to the child's estate upon the child's death before that age.
26 September 1996 T.I. 962503 (C.T.O. "Transfer of Farm Property to Child")
Where a transfer of farm property described in s. 73(3) occurs for no consideration, or for consideration less than the land's adjusted cost base, the transferring farmer cannot utilize any unused portion of the capital gains deduction.
17 February 1994 T.I. 5-932117 -
It is not necessary that a particular asset be used in farming at a point in time immediately prior to the transfer. However, using the asset for some purpose other than farming for an extended period prior to the date of transfer could cause the asset to be considered to have been used primarily for some other purpose rather than having been used primarily in the business of farming.
16 December 1993 T.I. 931610 (C.T.O "Remainder Interest in Land")
A remainder interest in land is "land" for purposes of s. 73(3) if the requirements in IT-268R3, para. 9 are satisfied and, if all other conditions under that subsection are met, the provisions of s. 73(3) will apply on its transfer and the provisions of s. 43.1(1) will not.
19 September 89 T.I. (February 1990 Access Letter, ¶1118)
Where a farmer gifts farm land to his son, s. 69 will not apply because of s. 73(3)(c). Therefore, the "proceeds of disposition otherwise determined" will be nil, with the result that the land would be transferred at the farmer's adjusted cost base.
Subsection 73(4) - When subsection (4.1) applies
Administrative Policy
87 C.R. - Q.71
Property transferred to a trust solely for the benefit of a minor will qualify for the rollover.
Subsection 73(4.1) - Inter vivos transfer of family farm or fishing corporations and partnerships
Administrative Policy
2013 Ruling 2012-0472721R3 - Inter-vivos share transfer under 73(4) and (4.1)
Rulings that, subject to s. 69(11), s. 73(4.1)(a)(i) and s. 73(4.1)(b) applied to the transfer of shares of Farmco by Individuals 1 and 2 to a child of each in consideration for promissory notes bearing interest at the prescribed rate and to be forgiven by the estate of Individual 1 or 2, as the case may be, in the event of death.