CRA finds that s. 104(18) can apply where an executor has discretion to defer the payment of income for the benefit of minor beneficiaries over an extended period

When it applies, s. 104(18) deems income of a resident trust to have become payable in a taxation year to a beneficiary under 21 years of age, even though the income was not actually paid or payable to the beneficiary in the year. For s. 104(18) to apply, the entitlement of the child to that beneficiary’s share of the unpaid income must be vested otherwise than because of the exercise by any person of, or the failure of any person to exercise, any discretionary power, and the right to which must not subject to any future condition (other than a condition that the individual survive to an age not exceeding 40 years).

The will of a Quebec resident left all his property in equal shares, to his two children, aged 10 and 15. His will extended the estate administration until the children’s respective shares were distributed to them on attaining 25, with the will providing, in the meantime, that all income generated on each child’s share was to be used in the executor’s discretion for the support or maintenance of that child, with discretion to encroach on capital in the child’s favour.

CRA applied the principle that:

In the case of an estate, the conditions of subsection 104(18) may be satisfied even if the will contains provisions giving the executor discretion as to the timing of the payment of income or capital to a beneficiary under 21 years of age, provided that the executor has no discretion as to the determination of the amount of income to which such a beneficiary is entitled.

Accordingly, it appeared plausible to CRA that (subject to reviewing the details), s. 104(8) could apply.

Neal Armstrong. Summary of APFF Financial Strategies and Instruments Roundtable, Q.6 under s. 104(18).