30 April 1990 Internal T.I. 7900319 F - Project No. 1442, Interpretation Bulletin IT-381R2

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.

Subject: Project No. 1442 IT-381R2

This is in reply to your memorandum of April 5, 1990 requesting our views on the following proposes addition to the revision to IT-381R:

     "An income beneficiary may agree to pay a trust's tax liability arising from a designation under subsection 104(13.1) or (13.2). Often this is done where the payment of tax by the trust would reduce the value of the capital interests held by other beneficiaries.  The payment of tax by the income beneficiary is not be a contribution for the purposes of subparagraph 108(1)(i)(ii) or a gift for the purposes of paragraph 122(2)(d).  The payment must equal the tax payable by the trust on the income the beneficiary would receive but for the designation.  The payment can be made by

     -  reimbursing the trustee,

     -  providing a cheque payable to the taxing authority, or

     -  receiving a net amount from the trustee reflecting the beneficiary's share of income less the relevant taxes payable by the trust."

With respect to the proposed addition, we have the following comments:

1.     In line 3, we suggest that "where" be replaced by "because".

2.     In line 6, "be" seems unnecessary.

3.     In line 9, we suggest that "the beneficiary would receive but for the designation" be replaced by

     "that is deemed not to have been paid or payable to the beneficiary by virtue of the designation"

     to better reflect the postamble to subsections 104(13.1) and (13.2).

Director GeneralRulings DirectorateLegislative and Intergovernmental Affairs Branch