22 October 1990 Income Tax Severed Letter

24(1)
                                             5-901821
                                             D.S. Delorey
                                             (613) 957-3495
          19(1)

October 22, 1990

Dear Sirs:

This is in reply to your letter of July 31, 1990.

You mention in your letter that paragraph 4 of Interpretation Bulletin IT-381R sets out three circumstances under which taxable capital gains of a trust may be taxed in the hands of a beneficiary; i.e.,

     (a)  in accordance with "specific terms and conditions of the trust
          arrangement",

     (b)  "as a result of discretionary action by the trustees where such
          terms and conditions provide no specific direction in this
          respect", and

     (c)  "regardless of such terms and conditions, where a preferred
          beneficiary election is in effect".

With respect to (b) above, you are of the view that this refers to a specific action by the trustees pursuant to a discretionary power set out in, and granted in, the testator's. Will (in the case of a testamentary trust) or other governing trust document, rather than to some discretionary procedure permitted by this Department or by the Income Tax Act. We agree with your view.

We trust our comment is of assistance to you.

for Director Financial Industries Division Rulings Directorate