10 April 1990 Internal T.I. 59579 F - Trust Designation in respect of 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 10, 1990

Dear Sirs:

This is in reply to your letter of February 8, 1990 and further to our conservation (Delorey/ 19(1) on March 29, 1990 concerning designations by a trust under subsection 104(13.1) of the Income Tax Act (the "Act").

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 a 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 either by

(a)     reimbursing the trustee,

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

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

(d)     encroaching upon the beneficiary's capital interest in the trust.

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 Director Financial Industries Division Rulings Directorate