23 September 2003 External T.I. 2003-0008285 - Spousal Trust - Entitlement - Payable

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 term "entitled" in subsections 70(6), 73(1.01) and 104(24) of the Act relates to a legal right to enforce payment of an amount?

Position:

Yes.

Reasons:

Current positions.

XXXXXXXXXX 2003-000828
Fouad Daaboul
September 23, 2003

Dear XXXXXXXXXX:

Re: Entitlement under section 104 and subsections 70(6) and 73(1.01) of the Act

This is in reply to your letter of March 5, 2003, wherein you requested confirmation of your understanding concerning the above-noted provisions, as related to our document 2002-012965, in the following situation.

Situation

A testamentary spousal trust is worded to allow the spouse under the trust to be entitled to all of the income that arises before the spouse's death, but it is also worded so that the spouse can only force a distribution of that income every three years, with a "catch up" in the year of death.

Your comments

You mention: "In subsections 70(6) and 73(1), the wording does not state that the spousal beneficiary under the trust has to have an immediately enforceable right to the income, as income, that arises before her death and thus, technically, it would appear that her right to the income that arises before her death can be deferred in enforceability for any length of time thus exempting her from recognizing the trust income under section 104."

Our comments

To qualify as spousal trusts when a capital property is transferred to a trust on a tax deferral basis, subsections 70(6) and 73(1.01) of the Act set out conditions, one of which is that the spouse is entitled to receive all of the income of the trust that arises before the spouse's death. This means that the spouse has a legal right to enforce payment of that income in the year in which the income is realized. In other words, the amount of the income of the trust must become payable to the spouse beneficiary in the year in question. We would not generally consider that a stipulation in the trust indenture requiring the distribution to be made in a year subsequent to the year the income is earned would prevent the amount of the income from being payable to the beneficiary in the year or would disqualify a trust from being a spousal trust. However, we would have to examine the specific terms of a trust before being able to comment on any specific arrangement.

A spouse under a spousal trust must generally include the income of the trust that became payable to the spouse in the year, in the spouse's income for his or her taxation year in accordance with subsection 104(13) of the Act, for any particular taxation year of the trust that ended in the taxation year of the spouse, regardless of when the income is actually paid. The entitlement of a spouse in a spousal trust to the income of the trust is what gives rise to the income of the trust for a year becoming payable to the spouse beneficiary in the year notwithstanding that the income distribution may be made at an ulterior date in accordance with the terms of the trust indenture. As noted above, however, we cannot comment as to whether an amount under a specific arrangement would be considered payable in the context of a technical interpretation.

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
- 2 -