5 April 1990 Ruling 59291 F - Trust Designations with respect to Beneficiary

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.

April 5, 1990

Dear Sirs:

Re:  Subsection 104(13.1) Designations

This is in reply to your letter of December 21, 1989 and further to our telephone conversation (Delorey  19(1)  on March 29, 1990 concerning designations by a trust under subsection 104(13.1) of the Income Tax Act (the "Act").

Your particular concern is with respect to the situation where a trust makes a subsection 104(13.1) designation and the beneficiary pays the trust's resulting tax liability by either

(a)     reimbursing the trustee,

(b)     giving the trustee a cheque made payable to the Receiver General, or

(c)     receiving a net amount from the trustee; i.e., an amount equal to the beneficiary's share of the trust's income less his share of the taxes.

You ask if the payment of the taxes by the beneficiary would affect the status of a testamentary trust on the basis that a contribution has been made to the trust for the purpose of subparagraph 108(1)(i)(ii) of the Act or, where the trust is an inter vivos trust that otherwise meets the conditions set out in subsection 122(2)(d) is not met; i.e., the trust has received property by way of gift.

Our comments

Where an income beneficiary has agreed to bear the burden of a trust's tax liability arising out of a subsection 104(13.1) designation, it is our view that the payment of the taxes by the beneficiary will not in and of itself result in either a contribution to the trust for the purpose of subparagraph 108(1)(i)(ii) of the Act or gift to the trust for the purpose of paragraph 122(2)(d) of the Act.  The amount paid by the beneficiary must be equal to the taxes payable by the trust on income that would have been received or receivable by the beneficiary but for the designation.  The payment may be made by either of the methods referred to in (a) to (c) above.

The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 24 of Information Circular 70-6R.  We trust however that they are of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate