| 24(1) | 5-901930 |
| D.J. Lightheart | |
| (613) 957-8961 |
19(1)
November 20, 1990
Dear Sirs:
24(1)
We are responding to your letter of August 1, 1990, in which you made inquiries regarding the ability of the above-mentioned estate to make a designation of taxable capital gains to the income beneficiary of the estate.
Since the situation described in your letter deals with an actual proposed transaction, your request would more appropriately be the subject of an advance income tax ruling and therefore we cannot provide a specific reply to your request. We are, however, prepared to provide the following general comments. All references to statute are to the Income Tax Act.
It is our position that an estate may only make distributions to a beneficiary of an estate as are expressly permitted by the will of the deceased. If a beneficiary in an income beneficiary, subsection 108(3) is used to define income. "Income" of a trust is defined to be its income completed without reference to the provisions of the Income Tax Act. In other words, "income" is defined to mean income in the trust accounting sense and not in the income tax sense. Normally, all accretions to capital belong to the capital beneficiaries of a trust and are not considered income under trust law. Thus in the absence of an encroachment on estate capital or any other actual payment of estate capital to a beneficiary, no amount of capital gain will be required to be included in the "income" of an income beneficiary by virtue of subsection 104(13), no amount of capital gain can be payable to an income beneficiary within the meaning of subsection 104(24) and no amount of taxable capital gain may be designated to that beneficiary in accordance with subsection 104(21).
While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate