| 19(1) | File No. 5-9473 |
| D.S. Delorey | |
| (613) 957-3495 |
April 5, 1990
Dear Madam:
Re: Subsection 104(13.1) Designations
This is in reply to your letter of January 22, 1990 and further to our telephone conversation (Delorey 19(1) on March 29, 1990 concerning designations by a trust under subsection 104(13.1) of the Income Tax Act (the "Act").
Where an income beneficiary has agreed to bear the burden of a trust's tax liability arising out of a subsection 104(13.1) 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 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 her share of the taxes.
As agreed during our telephone conversation, the other issues raised in your letter need not be addressed given our view that the reimbursement discussed in your letter will not affect the status of a testamentary trust, as explained above.
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 to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate