7 December 1989 T.I. (May 1990 Access Letter, ¶1225)

Discussion of various consequences where a beneficiary makes a payment to the trustee to enable the trustee to pay the tax liability of a trust caused by a designation under s. 104(13.1).

Where a beneficiary makes a payment to the trustee to enable the trustee to pay the tax liability of the trust caused by a designation under s. 104(13.1), the payment will represent a contribution to the trust for purposes of s. 108(1)(i)(ii), with the result that the trust will no longer qualify as a testamentary trust.

Where a trust pays the tax liability out of trust income resulting from an s. 104(13.1) designation, the requirements of s. 70(6)(b)(i) will not be met. However, the payment of the tax out of taxable capital gains of the trust will not in and of itself preclude the trust from qualifying.