2001 Ruling 2001-0076753 - Testamentary Trust to Provide Capital

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.

Principal Issues: Is a deduction available under 104(6) for an amount of income payable to a tax-exempt beneficiary?

Position: Yes

Reasons: The amount is payable to the beneficiary under the terms of the trust and is not a gift for which a charitable donation is available to either the trust, the estate or the deceased taxpayer.

XXXXXXXXXX 2001-007675

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-noted trust in respect of the income tax consequences arising out of the proposed transactions described below. We also acknowledge your correspondence of XXXXXXXXXX.

We understand that, to the best of your knowledge, and that of the taxpayer on whose behalf this ruling is requested, none of the issues contained in this advance income tax ruling are:

• contained in earlier returns of the taxpayer or a related person;
• being considered by a tax services office or a tax centre in connection with a tax return previously filed by the taxpayer or a related person;
• under objection by the taxpayer or a related person;
• before the courts; or
• the subject of a ruling previously issued by the Directorate to the taxpayer or a related person.

In this letter, unless otherwise indicated, all statute references are to the Income Tax Act (R.S.C. 1985, 5th supplement, c.1 as amended) (the "Act") and the following terms have the meaning specified:

"Beneficiary" means the XXXXXXXXXX, a municipality within the meaning of paragraph 149(1)(c);

"Community Project" means a project to create or improve a building or other structure within the XXXXXXXXXX, and more particularly within XXXXXXXXXX, that may include one or more of an entertainment centre, cultural centre for the performing arts, park improvements, pavilion, bandshell, library, community theatre, concert hall, museum of local and community heritage, sports centre and stadium;

"Executors" means XXXXXXXXXX, surviving spouse and XXXXXXXXXX, niece, collectively;

"Income", in respect of the Trust for a taxation year, means all of the income derived from the property of the Trust for that year calculated in accordance with section 3 without reference to subsection 104(6);

"Mr. A" means XXXXXXXXXX, deceased;

"Trust" means the trust created by the terms of the last will and testament of Mr. A and is called the XXXXXXXXXX; and

"Trustees" means XXXXXXXXXX, collectively.

Prior to his death, Mr. A's tax services office was the XXXXXXXXXX Tax Services Office. The Trust's tax services office is the XXXXXXXXXX Tax Services Office and it will file its T3 returns at the Ottawa Technology Centre. An account number has not yet been assigned to the Trust. The T3 returns for the estate of Mr. A are also filed at the Ottawa Technology Centre and have been assigned the account number XXXXXXXXXX.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Facts

1. Mr. A died on XXXXXXXXXX, leaving a will which, among other things, provided for the creation of the Trust to endow, bestow upon and provide for all or part of the capital required to complete a Community Project.

2. Mr. A's last will and testament is dated XXXXXXXXXX. Probate of the will was granted on XXXXXXXXXX, by the XXXXXXXXXX Court - General Division to the Executors.

3. Under the terms of Mr. A's will, $XXXXXXXXXX was settled on the Trust. The relevant terms of the will which pertain to the Trust are as follows:

(a) provided that the Beneficiary undertakes to use the funds to complete a Community Project, the Trustees are authorized to pay payments of income or capital from the Trust to the Beneficiary or to such other person as the Beneficiary directs,

(b) the Trustees have absolute discretion with respect to the timing of the payment of any of the income or capital of the Trust, and

(c) upon completion of the Community Project, any remaining income or capital of the Trust is to be paid to the Beneficiary at such time as determined by the Trustees.

4. On XXXXXXXXXX, the Beneficiary agreed to the terms of the endowment and on XXXXXXXXXX, the Beneficiary approved the construction of a bandshell in XXXXXXXXXX .

5. The Trust is resident in Canada and its taxation year ends on XXXXXXXXXX; it is a "testamentary trust" as defined in subsection 108(1) and a "personal trust" as defined in subsection 248(1).

6. In XXXXXXXXXX, the Trustees exercised their discretion to make a payment of $XXXXXXXXXX out of the capital of the Trust to the architects of the Community Project on behalf of the Beneficiary.

Proposed Transactions

7. The Trustees will exercise their discretion to make the total amount of the XXXXXXXXXX Income of the Trust payable to the architects of the Community Project on behalf of the Beneficiary before the end of the XXXXXXXXXX taxation year of the Trust.

8. The Trustees expect that the project will be completed by the end of the XXXXXXXXXX calendar year and that the balance of any income and capital of the Trust will be payable to the Beneficiary at that time.

Purpose of Proposed Transactions

9. The purpose of the proposed transactions is to reduce the aggregate tax levied under the Act on the Beneficiary and the Trust in respect of the income of the Trust.

Rulings Given

Provided that the preceding statements are accurate and constitute complete disclosure of all relevant facts, proposed transactions and purpose thereof and the proposed transactions are carried out as herein described, our advance income tax rulings are as follows:

A. To the extent that the Income is made paid or payable to the Beneficiary before the end of the Trust's taxation year and the Trust does not file a designation under either subsection 104(13.1) or (13.2), such Income will be deductible in computing the income of the Trust under subsection 104(6) for the year.

B. The amount of Income paid or payable to the Beneficiary under the terms of the Trust is not a charitable donation for which a tax credit under subsection 118.1(3) may be claimed by the Trust, the Estate or by the Executors on the final return filed for Mr. A.

C. The amount of capital paid or payable to the Beneficiary under the terms of the Trust is not a charitable donation for which a tax credit under subsection 118.1(3) may be claimed by the Trust or the Estate.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R4, Advance Income Tax Rulings, and are binding on the Canada Customs and Revenue Agency (CCRA) provided the proposed transactions are completed within six months of the date of this letter. These rulings are based on the Act in its present form and do not take into account the effects of any proposed amendments thereto.

The above rulings should not be construed as providing the CCRA's views on whether the $XXXXXXXXXX settled on the Trust is a charitable donation for which a tax credit under subsection 118.1(3) may be claimed by the Executors on the final return filed for Mr. A.

Yours truly,

XXXXXXXXXX
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch