| 19(1) | File No. 5-900365 |
| D.S. Delorey | |
| (613) 957-3495 |
April 19, 1990
Dear Sirs:
Re: Designations Under Subsection 104(13.1) and (13.2) of the Income Tax Act (the "Act") and Qualifying Spouse Trusts
This is further to our letter of December 1, 1989 concerning an otherwise qualifying "spouse trust" that makes a designation under subsection 104(13.1) or (13.2) and pays the taxes out of trust income.
After reconsidering the matter, it is our view that a subsection 104(13.1) or (13.2) designation and the payment of the taxes our of trust income will not in and of itself affect the status of a trust described in paragraph 70(6)(b) or 104(4)(a) of the Act (i.e., a "spouse trust").
For your additional information, we are also of the view that where an income beneficiary has agreed to bear the burden of a trust's tax liability arising our of a subsection 104(13.1) or (13.2) designation, the payment of the taxes by the beneficiary will not in and of itself result in either a contribution to the trust for the purpose of subparagraph 108(1)(i)(ii) of the Act or a gift to the trust for the purpose of paragraph 122(2)(d) of the Act. The amount paid by the beneficiary must be equal to the taxes payable by the trust on income that would have been received or receivable by the beneficiary bur for the designation. The payment may be made either by
(a) reimbursing the trustee,
(b) giving the trustee a cheque made payable to the Receiver General, or
(c) receiving a net amount from the trustee; i.e., an amount equal to the beneficiary's share of the income of the trust less his hare of the taxes.
The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 23 of Information Circular 70-6R. We trust however that they are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate