February 11, 1992
| AUDIT TRAINING PROGRAM | RULINGS DIRECTORATE |
| CENTRE FOR CAREER DEVELOPMENT | A.Y. HO |
| (613) 957-2094 |
Attention: Ron Spencer
| 913246 |
Subsection 104(13.1)
We are writing in reply to your memorandum of November 20, 1991 wherein you requested our opinion regarding the computation of the designated amount under subsection 104(13.1) of the Income Tax Act (the "Act"). In particular, your concern is with the purpose of the C amount and you are not certain that the A and B amounts include an amount described in subsection 105(1) of the Act.
Our Comments
Subsection 104(13.1) of the Act provides the mechanism to allow the trust to reduce the amount of income to be taxed in the hands of the beneficiaries. The amount that can be reduced is designated by the trust for each beneficiary.
The maximum amount that can be designated, for each beneficiary, is the beneficiary's share of "income distributions" (as this term is used in the Department of Finance Technical Notes). The C amount in subsection 104(13.1), is used to define these "income distributions" and is restricted to amount payable under subsection 104(13) and amounts paid by the trust described in subsection 105(2). The A and B amounts are chosen to determine the ratio of each "beneficiary's share" of "income distributions" and this is computed without reference to the Act. The A and B amounts would include income payable under subsection 104(13) as well as income retained by the trust, but would not include the taxable benefits of the beneficiaries under section 105. There may be other differences as well but these are two of the more obvious ones. (The maximum designation under C amount is then reduced by any D and E amounts.)
Therefore, the A or B amount may be differentiated from the C amount in two respects:
(1) income retained by the trust is included in the A or B amount but not in the C amount, and
(2) 105(2) amount is included in the C amount but not in the A or B amount.
In the example you cited where there is only one income beneficiary, the A and B amounts will be the same. Again, the A or B amount will be different from the C amount on any income retained by the trust as well as the subsection 105(2) benefits. The maximum amount that the trust can designate would then be the subsection 105(2) amount.
We trust the above comments are of assistance.
Yours truly,
for DirectorManufacturing Industries, Partnershipsand Trusts DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch