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: Timing of income recognition by a spousal trust which has invested in a mutual fund.
Position: It is a question of fact. However, generally, the beneficiary will recognize the income in the beneficiary's taxation year in which the relevant trust taxation year ends.
Reasons: Pursuant to paragraph 104(13)(a) of the Income Tax Act.
August 10, 2012 V. Srikanth
Re: Timing of income recognition by a Canadian spousal trust
This is in response to your correspondence dated June 21, 2012 wherein you wanted us to comment on the timing of income recognition by a Canadian spousal trust (the “Trust”). Specifically, you described a scenario wherein the Trust had an off-calendar year-end (March 31) and it received income from a mutual fund trust (the “Fund”) which had a calendar year-end (December 31). In this situation, you wanted us to comment on the following:
- Will paragraph 104(13)(a) of the Income Tax Act (the “Act”) apply such that the income indicated on the 2011 T3 slip issued by the Fund be reported in the 2012 T3 return of the Trust?
- With respect to the Fund distributions in the period January to March 31, 2012, should the Trust report the income in its 2012 or 2013 T3 return?
Written confirmation of the tax implications inherent in actual proposed transactions is given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, entitled ‘Advance Income Tax Rulings’, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on our website at http://www.cra-arc.gc.ca. Your request was not submitted as an advance income tax ruling request, however, as stated in paragraph 22 of IC 70-6R5, we do provide written opinions on general enquiries and we are prepared to provide you with the following comments.
Please note that you have stated in your above-mentioned correspondence that the Trust has an off-calendar year-end. Accordingly, it is assumed, for the purposes of our response, that the Trust is a testamentary trust as defined in subsection 108(1) of the Act that is resident in Canada and remains so throughout each of its taxation years.
Pursuant to paragraph 104(13)(a) of the Act, a beneficiary's income inclusion is generally that part of the trust's income, calculated prior to any deductions under subsection 104(6) or subsection 104(12) of the Act, that became payable to the beneficiary in the trust's taxation year that ended in the beneficiary's taxation year. Thus, paragraph 104(13)(a) has a two prong test, i.e., for paragraph 104(13)(a) to apply, firstly, the amount must be part of the trust’s income for the trust’s taxation year that ended in the beneficiary’s taxation year; and secondly, such amount must have become payable to the beneficiary in the trust’s taxation year. Subsection 104(24) of the Act provides that an amount is deemed not to have become payable for the purposes of, inter alia, subsection 104(13) of the Act, unless it was paid in the year or the beneficiary was entitled in the year to enforce payment of the amount.
Accordingly, in the given scenario, in our view, income amounts that became payable to the Trust during the months of January to March of 2012, that relate to income earned for 2012 taxation year of the Fund (i.e., December 31, 2012), which ends in the 2013 taxation year of the Trust (i.e., March 31, 2013), will be reported in the 2013 T3 return of the Trust. Similarly, the amounts indicated on the 2011 T3 slip from the Fund will be reported in the 2012 T3 return of the Trust.
We trust our comments will be of assistance to you.
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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