Trusts and AttributionThe attribution rules for trusts, transferors, and so on are given in Subsections 74.1(1) and 74.2(2) of the Canadian Income Tax Act (“ITA”).  These rules are meant to attribute back to the transferor any income or capital gains generated from property transferred at less than fair market value consideration or for no consideration to a spouse of the transferor, as well as to attribute income, but not capital gains, on similar transfers to a non-arms length minor such as a child. Such rules apply in similar fashion to loans at less than fair market value interest. These rules are not applicable to the transferor to attribute any income, loss, taxable capital gains or allowable capital losses that relate to a period following the death of the transferor. Consequently, these rules are not applicable to a testamentary situation.

Jennifer Stoddart, Canada’s privacy commissioner, has reported that the changes that Facebook has made to its privacy settings have satisfied her concerns. She warns, however, that she’s not finished scrutinizing the personal-information powerhouse.Stoddart said in a statement Wednesday that Facebook now has new measures to limit information sharing with third-party application developers and now provides users with information about its privacy practices.Stoddart credits “extensive” and “intense” discussions with Facebook, and admits that there is still “room for improvement.” She has warned Facebook not to expand the categories of user information that come up in web searches, which users can’t control through their privacy settings. She has also recommended changing the default settings for photos, which are set to be visible to “everyone on the Internet,” though some of the site’s other changes have mitigated this concern.

If capital property of a taxpayer is transferred to a qualifying inter vivos spousal trust, s.73(1) of the ITA permits the property to be transferred at its adjusted cost base. This is also allowed in respect of its undepreciated capital cost where it is depreciable property of a prescribed class. Under subsection 73(1), the transferor can elect in his or her tax return, the year in which the property was transferred, to forego the rollover. In that event, s. 69 will apply to deem the transfer or gift to take place at fair market value.The requirements to qualify as an inter vivos spousal trust are the following:1) The transferor and the trust should be resident in Canada when the property is transferred to the trust;

The appeal by shareholders, British Columbia Investment Management Corporation and others, from Magna International’s successful application for an order approving a proposed arrangement pursuant to s. 182(5) of the Business Corporations Act has been dismissed. Magna designed, developed and manufactured automotive systems.The opposing shareholders were the only Class A shareholders who opposed approval of the proposed arrangement. Collectively, they owned less than three per cent of all of the Class A Shares.Magna had a dual class share capital structure comprising Class A subordinate voting shares (the “Class A Shares”) and multiple voting Class B shares (the “Class B Shares”). The company’s controlling shareholder, the Stronach Trust, owned, outright and through other corporations, all of the 726,829 outstanding Class B Shares.

Time for searchesBefore closing a real estate transaction, a real estate lawyer will need time to search title, executions and make off-title searches or inquiries.  The title search date in the OREA Agreement sets out the date in which a lawyer has time to do the searches and request that the Vendor’s lawyer rectify any on title or off-title deficiencies.   Should the contract fail to provide a specific time period for submitting requisitions, there a statutory date set in Section 4 of the Vendors and Purchasers Act which prescribes a 30-day period from the date of the contract.  It is important to give lawyers on both sides enough time to make and reply to requisitions because if there is a matter that cannot be resolved such as a lien that cannot be satisfied, the contract can be terminated or delayed.  Sometimes, lawyers will disagree as to whether the requisition is a valid one and whether failure to satisfy the requisition can terminate or delay a deal.  In these cases, there is recourse under the  Vendors and Purchasers Act.

In the OREA standard form agreement (“OREA Agreement”), there is a blank space provided where it should be indicated whether taxes are “included in” or “in addition to” the purchase price. Generally in residential resale transactions, this space is completed with “included in”, but it is essential to be correct because even though a used-residential property is not subject to HST, if the property is commercial or has a commercial component, it would be subject to the tax.The problem often arises with commercial properties because sometimes the agreements are prepared on the wrong OREA form and the section for HST is overlooked as a formality.  As stated above, commercial properties and even mixed residential/commercial (although only the commercial part would be subject) are subject to the tax.   A commercial property can be a storefront, an office building, a condominium office or store, etc.  There are ways to off-set the HST payable by the purchaser however it is extremely important to be clear that the purchaser and seller are aware of the tax consequences and therefore understand whether the purchase price is “included in” or “in addition to”.  Having regard to this, if there is any doubt, advice should be sought from professionals with specific knowledge such as lawyers or accountants.

Classification of Trusts1. Testamentary TrustsThe Income Tax Act defines a testamentary trust as a trust or estate that is formed consequent to the death of a tax-paying individual (ITA, s. 108(1)). It can also be created under the terms of a will or by an order of a court made pursuant to dependants’ relief legislation. As compared to this, an inter vivos trust is defined in the ITA as a trust other than a testamentary trust.2. Inter Vivos TrustsFrom June 17, 1971, inter vivos trusts are taxed at the highest marginal rate, while testamentary trusts are subject to the graduated rates applicable to individuals. Ideally, it is possible for a taxpayer to establish a testamentary trust, to which property can be contributed after his or her death by someone other than the taxpayer. The testamentary trust so created could then take advantage of the graduated rates of tax. With a view to prevent such abuse, the definition of a testamentary trust was amended. Consequently, for taxation years commencing after November 12, 1981, the following trusts are excluded from qualifying as testamentary trusts, thereby being converted into inter vivos trusts taxable at the highest tax rate:

Rates of TaxUnder s. 117, ITA, a testamentary trust is subject to tax, at the same graduated rates as an individual, while the rate of tax payable by an inter vivos trust depends on the date the trust was established. Such trusts established after June 17, 1971 are subject to a flat rate of tax equal to the highest marginal tax rate applicable to individuals ITA, s. 122(1) and CRA, Interpretation Bulletin IT-406R2, “Tax Payable by an Inter Vivos Trust”.According to subsection 122(2), ITA, an inter vivos trust is taxed at the regular graduated rates, when the trust (a) was established before June 18, 1971; (b) was resident in Canada on June 18, 1971 and remained so without interruption thereafter until the end of the year; (c) did not carry on any active business in the year; (d) has not received any property by way of gift since June 18, 1971; (e) has not, after June 18, 1971, incurred (i) any debt or (ii) any other obligation to pay an amount, to, or guaranteed by, any person with whom any beneficiary of the trust was not dealing at arm’s length; and (f) has not received any property after December 17, 1999, where (i) the property was received as a result of a transfer from another trust, (ii) subsection (1) applied to a taxation year of the other trust that began before the property was so received, and (iii) no change in the beneficial ownership of the property resulted from the transfer.

Taxation of TrustsThe taxation of trusts and their beneficiaries are dealt with under Sections 104 to 108, inclusive, of the ITA. The fundamental principle with respect to taxation of trusts and estates is given in Subsection 104(2) of the ITA, which considers a trust or estate to be an “individual” for tax purposes. A trust (which includes estates) created by a will, also known as a testamentary trust, and the estate of a taxpayer who has died intestate are both treated, for tax purposes, as trusts. Consequently, inter vivos and testamentary trusts and estates are made distinct taxable entities. However, the estate of a deceased is separate and distinct from the deceased for tax purposes. The income of the deceased is taxable until the day of death and any income after that time is taxed separately as the estate’s income. An important and useful exception to this principle is given under ITA, s. 164(6), permitting the estate to transfer capital losses and terminal losses incurred during its first taxation year against the deceased’s income in the year of death. Considering that a trust or estate can own property or even carry on a business, it is subject to income tax on the taxable income derived from the property or earned from the business, including any taxable capital gain and recapture incurred on the sale of its capital or depreciable property.

BeneficiariesShould the beneficiaries be not specifically referred to by name, they could be referred to by class, such as “children”. However, the description of the class has to be sufficiently precise so as to determine whether any particular person is or is not a member of the class. If, however, the trustee has discretion as to whom and in what proportions among a class he or she will distribute the trust property, a situation could arise when the trustee would not be able to determine who all the possible beneficiaries are, but need only determine whether any particular beneficiary is within the class. An exception to this rule is that the objects of a charitable trust should always be certain.Therefore, when establishing a trust, the settlor has to make it clear that he or she intends to establish a trust, specifically describe the property which is to be the subject matter of the trust, and identify the beneficiaries beyond any doubt.