7 - 912069
Re: Subsection 104(13.1) Designations
This is in reply to your memorandum of July 23, 1991 concerning the application of subsection 104(13.1) of the Act in a year where a trust's income is payable to the beneficiaries but no amount is paid to them.
You state in your memorandum that the amounts in A and B of the formula in subsection 104(13.1) appear to be limited to amounts received in cash with the result that if no amount is paid to the beneficiaries, no 104(13.1) designation would be possible because the formula would always produce a nil amount. Since such a result is in your view contrary to the intent of subsection 104(13.1), you ask for our views on whether or not the A and B amounts are limited to amounts received in cash.
Our Comments:
It is our view that the amounts in A and B of the subsection 104(13.1) formula are not limited to amounts received by the beneficiary in the year. Rather, the modifying words "computed without reference to this Act" in A and B should be interpreted in a manner such that the trust's income for the year is that determined in accordance with the terms of the trust document, rather than the provisions of the Income Tax Act, and the beneficiary's share of that income will be dictated by those terms.
On September 17, 1991, we discussed the matter with Simon Thompson of the Department of Finance and he agreed that the above interpretation correctly reflects policy intent.