5-910697
Dear Sirs:
Re: Request for Technical Interpretation Tiered Trusts
We are writing in reply to your facsimile transmission of March 12 and March 22, 1991, concerning an interpretation of subsections 104(21), 104(21.2) and subclause 53(2)(h)(i.1) (B)(1) of the Income Tax Act (the "Act"). As you advised in our telephone conversation (Spice 19(1) of March 22, 1991, your inquiry relates to a proposed transaction. We are, therefore, unable to provide you with a binding opinion unless you submit a request which satisfies the conditions set out in Information Circular 70-6R2. We offer the following general comments, however, for your assistance.
A trust which is in receipt of capital gains as a beneficiary is required to include such amounts in its return of income for the year. These amounts in turn form part of the total amount of net taxable capital gains which can be designated pursuant to subsection 104(21) of the Income Tax Act. (See in particular lines 110 and 122 of Schedule 1 and Part 1V of Schedule 3 to the T3 Return of Income.) The non-taxable portion of the taxable capital gains paid to beneficiaries and designated under subsection 104(21) will not reduce the adjusted cost of their capital interests in the trust.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate