4 February 2003 External T.I. 2002-0129655 - Spousal Trust

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 CCRA.

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

Principal Issues: Whether the income earned by a spousal trust would be accumulated for the benefit of the spouse that to be received by the spouse after being taxed in the trust's hands?

Position: Generally No.

Reasons: Wording of the Act.

XXXXXXXXXX 2002-012965
Fouad Daaboul
February 4, 2003

Dear XXXXXXXXXX:

Re: Entitlement of a spouse under subsection 70(6) of the Income Tax Act

This is in reply to your letter of March 13, 2002, in which you requested clarification with respect to the above-noted provision.

You mention in your letter that the spouse must be entitled to receive, under subsection 70(6) of the Income Tax Act (the "Act"), all of the income of the trust that "arises" before the spouse's death. In this regard, you raise the following question:

Can the income earned by a spousal trust be accumulated in the trust for the benefit of the spousal beneficiary, who will only receive it after it has been taxed in the trust's hands, or does the spouse have to recognize the income in her hands since she has an immediate enforceable right to that income as it arises?

Our comments

For purposes of this letter, we assume that the income of the trust is also the income that the spouse is entitled to receive from the trust.

Any amount of income earned by a trust that is payable in the year to a beneficiary is included in the beneficiary's income under subsection 104(13) of the Act, unless a designation is made by the trust in its return of income, under subsection 104(13.1) of the Act. As a general rule, amounts included in the income of a beneficiary under subsection 104(13) of the Act are deductible in computing the income of the trust under subsection 104(6) of the Act.

An amount is deemed to have become payable to a spouse in a taxation year where the amount was paid in the year to the spouse or where the spouse was entitled to receive the amount, which means that the spouse must have a legal right to enforce payment of the amount, in accordance with subsection 104(24) of the Act.

Consequently, the income earned by the trust in a taxation year that becomes payable to the spouse in the year would be included in computing the income of the spouse for the year, regardless of whether or not the income was paid to the spouse and whether or not the income was deducted by the trust.

We trust our comments will be of assistance.

Yours truly,

Alain Godin
Section Manager
for Division Director
International and trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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