| 19(1) | 5-8998 |
| Maureen Shea-DesRosierss | |
| (613) 957-8953 |
December 1, 1989
Dear Sirs:
Re: "Amounts Deemed Not Paid" Subsections 104(6), 104(13.1) and 104(13.2) of the Income Tax Act (the "Act")
This is in reply to your letter of November 1, 1989 concerning the abovementioned subject.
Your question is whether, if tax became payable pursuant to a testamentary trust by reason of the designation "amounts deemed not paid", and should the tax be recovered from the trust income beneficiary who benefited from the designation, would that recovery constitute a "contribution" to the trust which would affect its status as a testamentary trust as defined in paragraph 108(1)(i) of the Act.
It is our opinion that a beneficiary in respect of whom a designation is made under subsection 104(13.1) or 104(13.2) of the Act subsequently reimburses the trust capital for any taxes paid by the trust, the trust would lose its status as a testamentary trust as defined in paragraph 108(1)(i) of the Act.
The effect of subparagraphs 108(1)(i)(ii) and (iii) of the Act is that if someone other than the testator contributes property to a testamentary trust, that trust will no longer qualify as a testamentary trust. It will become an inter vivos trust as defined in paragraph 108(1)(f) of the Act.
We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate