| 24(1) | File No. 5-900879 |
| D.S. Delorey | |
| (613) 957-3495 |
19(1)
June 6, 1990
Dear Sir or Madam:
This is in reply to your letter of May 18, 1990 concerning a designation by a trust under subsection 104(13.1) or (13.2) of the Income Tax Act (the "Act").
You are concerned about the affect that such a designation might have on the status of the trust, particularly where the trust's tax liability arising out of the designation is paid by the beneficiary.
It is our view that a subsection 104(13.1) or (13.2) designation 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"), whether the trust's tax liability arising out of the designation is paid by the trust or the relevant beneficiary.
Where a beneficiary bears the burden of a trust's tax liability arising out of a subsection 104(13.1) or (13.2) designation, it is our view that 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 equal the taxes payable by the trust on income deemed not to have been paid or payable to the beneficiary by virtue of the designation. The payment may be made by
(a) reimbursing the trustee,
(b) providing a cheque made payable to the taxing authority, or
(c) receiving a net amount from the trustee reflecting the beneficiary's share of the income of the trust less the relevant taxes payable by the trust.
The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 24 of Information Circular 70-6R. We trust however that they are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate