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.
Principal Issues: A unit trust with many unitholders plans to designate a certain portion of its income under subsection 104(13.1). Would a letter setting out the names of the beneficiaries and a general statement of the income to be taxed in the unit trust be sufficient for purposes of the 104(13.1) designation?
Position: No
Reasons: The 104(13.1) designation is made for each beneficiary and will generally reduce the adjusted cost base of each beneficiary's capital interest in the unit trust.
XXXXXXXXXX
2012-043717
W. King
October 17, 2013
XXXXXXXXXX:
Re: Income designation under subsection 104(13.1) of the Income Tax Act
This is in response to your email and subsequent letter in which you asked us to confirm whether a letter setting out the names of a unit trust's beneficiaries along with a general statement of the income to be taxed in the trust would be sufficient documentation for the purpose of designating an amount in respect of a beneficiary under a trust as provided by subsection 104(13.1).
You have indicated the unit trust has over a thousand members and the unit trust is not a mutual fund trust. You also asked whether the reporting requirements would differ where the trust made a designation under 104(13.1) to retain all of the income in the trust.
Our Comments
Subsection 104(13.1) provides the mechanism for a Canadian resident trust (other than a trust exempt from tax under subsection 149(1)) to include in its income an amount that is otherwise paid or payable to a beneficiary. Where the conditions in subsection 104(13.1) are met, the amount designated by the trust is deemed not to have been paid or payable in the year by the trust for the purposes of subsections 104(13) and 105(2). As a result, the beneficiary is not taxed on that income. However, under paragraph 53(2)(h) such amount will generally reduce the adjusted cost base of the beneficiary's capital interest in the trust. Therefore, a general statement of the income to be taxed in the trust would not be sufficient for purposes of the subsection 104(13.1) designation.
In completing the T3 Trust Income Tax and Information Return (T3 Return) for a tax year wherein the trustee chooses to designate any portion of a beneficiary's income to be reported on the trust's T3 Return, the trustee is to enter the total of all such designated amounts on line 472 of the T3 Return while at the same time attaching a statement to the T3 Return showing the total income being designated and the amounts being designated for each beneficiary. The fact that all income is taxed in the trust is not evidence of a designation and does not impact the reporting requirements.
Our comments are provided in accordance with paragraph 22 of Information Circular 70-6R5. We hope our comments will be of assistance.
Yours truly,
Steve Fron, CPA, CA
Manager
Trusts Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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