Can a personal trust annually allocate to its beneficiaries the interest income deemed to be earned by it on a prescribed debt obligation such as a stripped coupon even though no amount will be received until the subsequent year of the coupon’s maturity? CRA responded:
Deemed interest income under … Regulation 7000 debt obligations is not income of the trust under the Civil Code. Consequently, such income is not likely to constitute income payable to a beneficiary in the year under a trust indenture. However … we allow a deduction pursuant to subsection 104(6) in respect of deemed income if the terms of the trust indenture are such that the trustee is required to pay an amount equal to that income to the beneficiary, or if the trustee may, under the trust indenture, pay or make payable an amount equal to the amount deemed to be income under the I.T.A., if the trustee exercises that discretion irrevocably and unconditionally before the end of the trust's taxation year.