| 921487 | |
| 24(1) | F.B. Fontaine |
| (613) 957-4364 |
Attention: 19(1)
July 7, 1992
Dear Sirs:
Re: Subsections 104(14) and (15) of the Income Tax Act (the "Act")
This is in reply to your letter dated May 6, 1992 requesting a technical interpretation of the above-noted provisions of the Act and of paragraph 2800(3)(f) of the Income Tax Regulations ("Regulation 2800(3)(f)") as they relate to an inter-vivos trust that was settled on or about January 1, 1987.
The situation described apparently refers to transactions involving specific taxpayers and some completed transactions. As indicated in paragraph 21 of Information Circular 70-6R2 (the "Circular"), such requests for written opinions are generally considered by the taxpayer's local District Taxation Office. Accordingly, we are unable to provide the information requested. However, we can offer the following general comments:
The application of subsections 104(14) and (15) of the Act together with Regulation 2800(3)(f) in any particular situation will, among other things, depend on whether:
i) a preferred beneficiary of a trust is entitled to a share of the accumulating income of the trust, and
ii) such share of the accumulating income of the preferred beneficiary is dependent upon the exercise of, or failure to exercise, a discretionary power under the trust.
Regulation 2800(3)(f) provides the formula for determining the discretionary share of the trust's accumulating income of a preferred beneficiary described in paragraph 104(15)(c) of the Act who is other than the settlor of the trust and/or his or her spouse. It is a question of fact whether these provisions will apply in any particular situation.
Where a beneficiary of a trust is subject to the provisions of paragraph 104(15)(c) of the Act, it is the Department's opinion that:
a) the number to be used as divisor in the calculation pursuant to Regulation 2800(3)(f) will include any preferred beneficiary who is alive at the end of the particular taxation year of the trust;
b) since Regulation 2800(3)(f) is not subject to the exception described in Regulation 2800(4), this number will also include all contingent preferred income beneficiaries, including those whose rights are contingent on the death of another preferred beneficiary;
c) this number will also include all capital preferred beneficiaries and all contingent capital preferred beneficiaries where the trust document does not specify that capital receipts by the trust, such as taxable capital gains, will be considered income for trust purposes;
d) despite the inclusion of a capital preferred beneficiary in the number by reason of the situation described in c), the share of such beneficiary in the accumulating income of the trust for a particular year would depend on whether there is a capital gain realized by the trust in that year. Generally, where no capital gain was realized in the year, such share would be nil and an election under subsection 104(14) of the Act in respect of such capital beneficiary would have no tax consequences;
e) where capital receipts are income for trust purposes, capital beneficiaries who are not otherwise income beneficiaries could never share in the accumulating income of the trust. In this case, all such capital preferred beneficiaries (contingent or otherwise) would be excluded from the calculation under Regulation 2800(3)(f) since, in our opinion, they would never be entitled to share in the accumulating income of the trust for any taxation year.
In accordance with paragraphs 22 and 2 of Interpretation Bulletins IT-394R and IT-510 respectively, it should be noted that the designated part of the accumulating income of an inter-vivos trust in respect of a preferred beneficiary who is a related minor may be attributed to the settlor. These comments represent our opinion of the law as it applies generally. Also, as indicated in paragraph 21 of the Circular, this opinion is not an advance income tax ruling and accordingly, it is not binding on Revenue Canada, Taxation.
We hope that our comments will be helpful to you.
Yours truly,
for DirectorManufacturing Industries,Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch