2 March 1994 Ministerial Letter 930668A - INDIAN TRUSTS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

												930668
XXXXXXXXXX	 						J. Brooks

Attention: XXXXXXXXXX

March 2, 1994

Dear Sirs:

Re: Situs of Income from a Trust

This is in reply to your letter of December 1, 1993 in which you sought the Department's general views concerning the taxation of a trust of which the beneficiaries are Indians. You requested this general information as an interim response to your more specific enquiry of March 5, 1993 which concerns certain contemplated transactions.

Our comments

Our comments concern the Deparment's general views on trusts, and we caution that the taxation of trusts for Indians is presently under review by the Department.

1.Subparagraph 104(6)(b)(i) of the Income Tax Act (the "ITA") provides that a trust (other than an employee trust) may deduct in computing its income for a taxation year an amount not exceeding the amount which would be its income for the year, as became payable in the year to a beneficiary.

2.Paragraph 104(13)(a) of the ITA provides that an amount which became payable in the year to a beneficiary under a trust is included in computing the income of the beneficiary.

3.Paragraph 81(1)(a) of the ITA provides that an amount which is declared to be exempt from income tax by another enactment of Parliament, such as the Indian Act, is not included in computing the income of the recipient. Paragraph 87(b) of the Indian Act exempts from taxation the personal property of an Indian or band situated on a reserve. Prior to the Williams (92 DTC 6320, SCC) decision, it had been the Department's view that, by virtue of these two provisions, trust income of an Indian was exempt if the location of the trust, which in turn depended on the residence of the trustees, was on a reserve. However, in the Williams case, it was concluded that one must consider all of the factors in determining connection to a reserve.

Following a thorough analysis of the Williams case and due consideration of extensive input from the Indian community, the Department has developed four guidelines dealing with the taxation of employment income of Indians. We have not yet had the opportunity to fully examine the "connecting factors" that would situate income from a trust on a reserve. Your submission on the topic is helpful. We understand the difficulties that can be encountered in tax planning as a result of this situation and apologize for the delay.

Yours truly,

R. Albert
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch