Note
Official title
Allocation of General Trust Expenses
Language
French
Document number
Citation name
59694
Severed letter type
d7 import status
Drupal 7 entity type
Node
Drupal 7 entity ID
633019
Extra import data
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"field_release_date_new": "1990-04-06 08:00:00",
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Workflow properties
Workflow state
Main text
| 19(1) | File No. 5-9694 |
| D. Duff | |
| (613) 957-3498 |
April 6, 1990
Dear Sirs:
Re: Allocation of General Trust Expenses
Further to our letter of March 20, 1990 and the subsequent telephone conversations 19(1) Duff) of March, 1990 and March 29, 1990 we wish to clarify our position on the allocation of general expenses incurred by a trust.
To be deducted against income of a trust, an expenditure must have been incurred to earn income and accordingly, must relate to a source of revenue. General expenditures of a trust which were not laid out to earn income are not deductible and should not be applied against income from any particular source. for more information in this regard we refer you to pages 20 and 11 of the 1989 t3 Guide and Trust Return. As indicated in the section entitled "Deductions Must be Related to Sources of Income" those expenses which are related to more than one source of income should be apportioned on a reasonable basis to the applicable sources of income of the trust. Each situation must be evaluated on its own particular set of circumstances and we cannot provide general set of circumstances and we cannot provide general rules that would apply in all cases.
Subsection 104(19) and (21) of the Income Tax Act (the Act) permit a trust to deem dividend income and capital gains respectively to be earned directly by a beneficiary. These subsections do not permit the trust to relocate general expenses in order to maximize either dividend income or capital gains. However, the department has taken the position, as stated in paragraph 7 of IT-372R and restated in paragraph 5 of IT-524, that in certain circumstances a trust may deduct expenses against income other than taxable dividends to maximize their flow through. No similar position regarding capital gains or any other source of income has been taken.
You were concerned with the capital cost allowance (CCA) restriction in Regulation 110 of the Act and questioned if general trust expenses had to be allocated to rental income. As previously indicated in this letter general expenses had to be allocated to rental income. As previously indicated in this letter general expenses unrelated to any source of income are not deductible while general expenses are related to the rental income, they should be allocated to it on some reasonable basis before deducting any CCA.
We trust these comments will be of assistance to you and apologize for any inconvenience caused by our previous letter.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate