A.B. Adler (613) 957-8962
19(1)
April 23, 1990
19(1)
This is in reply to your letter dated April 12, 1990 concerning the application of subsection 104(13.1) of the Income Tax Act ("Act") in a number of situations.
Our comments will follow the order of the situations outlined by you.
1. It is always a question of fact whether a testamentary trust has been established for the purposes of subdivision k of Division B of Part I of the Act and, therefore, we are not in a position to make such a determination based upon a hypothetical example. In a case where a deceased person had only one asset, an interest bearing security, that was left to his spouse directly under the will generally the spouse would be taxable in respect of interest received thereunder.
2. As indicated in 1. above we are not in a position to determine if the "estate" referred to by you could be a testamentary trust for income tax purposes. Generally, as indicated in paragraph 10 of IT-212R3 a lump sum payment out of a pension plan is income of the recipient, for example, a trust or surviving spouse.
3. Provided that the trust is a testamentary trust within the meaning of that expression in paragraph 108(1)(i) of the Act, and that the full amount of the trust's income for a taxation year is otherwise payable to its beneficiaries then that amount payable may be designated under subsection 104(13.1) of the Act in the trust's return of income for the year. Further, since subsection 104(13.1) contemplates annual designations, such a designation could, as you suggest, be repeated annually for a number of years.
4. In common law, generally an executor has a period of one year from the date of his or her appointment in which to administer the assets of a testamentary trust. During that period beneficiaries cannot enforce their right to the income from the trust. Despite this, the allocation of income to the beneficiaries on form T3 supplementary is administratively acceptable to this Department. Alternatively, the trust could be taxable on its income for the taxation year, and this result would not be inconsistent with that arising from a designation under subsection 104(13.1) of the Act in respect of the trust's income for the taxation year.
5. Subsection 104(13.1) of the Act is a permissive provision and is applicable to designations thereunder for taxation years of trusts commencing after 1987. Generally, the making of a subsection 104(13.1) designation, in itself, would not result in the application of subsection 245(2) of the Act by reason of subsection (3) thereof.
6. Again, it is a question of fact whether a testamentary trust was created for purposes of the Act. If it was then the will or the underlying trust deed, as the case may be, would provide the basis for allocating trust income to the beneficiaries of the trust. Generally, amounts payable to a beneficiary of a trust are included in the beneficiary's income under subsection 104(13) of the Act. However, a designation may be made under subsection 104(13.1) in respect of the income of a trust for any taxation year commencing after 1987. Further, as indicated in 4 above the trust may decide whether or not to allocate income to its beneficiaries in respect of the "executor's year".
We trust that our comments will be of assistance to you.
Yours truly,
W. Douglas for Director Financial Industries Division Rulings Directorate