Principal Issues: What is the role of subsection 104(24) in computing a trust beneficiary's income?
Position: If an amount has, with regard to subsection 104(24), become payable to a beneficiary by a trust, the determination of whether that amount must be included in the beneficiary's income for tax purposes is not made under subsection 104(24) of the Act. Rather, the determination of whether and, if so, when the amount must be included in the beneficiary's income is made with regard to subsection 104(13) of the Act.
Reasons: 104(13), 104(24)
2006 STEP Round Table
Q.16 Amounts Payable by the Trust
Some commentators suggest that subsection 104(24) of the Act applies to determine whether amounts allocated by a trust to a beneficiary must be included in computing the income of a beneficiary. What is the CRA's view on the role of subsection 104(24) in determining the amount, if any, of a beneficiary's income inclusion for a given taxation year?
Response
Subsection 104(24) applies for the purposes of subparagraph 53(2)(h)(i.1) and subsections 104(6), 104(7) 104(13), and 104(20) of the Act. These five provisions - involving the income taxation of trusts and their beneficiaries - apply in respect of an amount only to the extent that an amount has become payable. Therefore, in order to apply the provisions, it must first be determined that the relevant amount has become payable.
Subsection 104(24) of the Act applies for the purposes of the above provisions to deem an amount, that has otherwise become payable to a beneficiary, not to have become payable to a beneficiary in a taxation year. The deeming rule does not apply, however, in respect of an amount that has otherwise become payable where the amount is paid in the taxation year to the beneficiary or the beneficiary was entitled in the taxation year to enforce payment of the amount.
Our view is that it is only if, on the applicable facts, an amount has first been determined to have become payable to a beneficiary and then also been determined either to be paid in a particular taxation to the beneficiary or become subject to an entitlement in the particular taxation year on the part of the beneficiary to enforce payment of it will the amount's status as an amount that has become payable in the particular taxation to the beneficiary be preserved for purposes of subparagraph 53(2)(h)(i.1) and subsections 104(6), 104(7) 104(13), and 104(20) of the Act.
Our administrative practice, however, has been to accept that an amount has become payable in a taxation year to a beneficiary for purposes of those provisions if, in the circumstances, it has been paid in the taxation year to the beneficiary or the beneficiary is entitled in the taxation year to enforce payment. It is in light of this position that the CRA's publications continue to sometimes refer to subsection 104(24) of the Act as "defining" whether an amount has become payable for the applicable provisions.
If an amount has, with regard to subsection 104(24), become payable to a beneficiary by a trust, the determination of whether that amount must be included in the beneficiary's income for tax purposes is not made under subsection 104(24) of the Act. Rather, the determination of whether and, if so, when the amount must be included in the beneficiary's income is made with regard to subsection 104(13) of the Act.
For a more detailed discussion, we refer you to CRA document 2005-015908.