19 April 1990 External T.I. 9003625 F - Designation by a Trust

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.

XXXXXXXXXX 

Attention:  XXXXXXXXXX

Dear Sirs:

We are writing to inform you of a position recently adopted by the Department concerning designations by a trust under subsection 104(13.1) of the Income Tax Act ("the "Act").

The issue arose as a result of a number of enquiries from trust companies and/or their representatives asking if the payment by the beneficiary of the trust's tax liability arising out of the subsection 104(13.1) designation would affect the status of a testamentary trust. That is, would the beneficiary's payment represent a contribution to the trust such that the requirement in subparagraph 108(1)(i)(ii) of the Act would not be met. Our reply has generally been as follows:

     "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 equal the taxes payable by the trust on income deemed not to have been paid or payable to the beneficiary by virtue of the designation. The payment may be made by

     (a)     reimbursing the trustee,

     (b)      providing a cheque made payable to the taxing authority, or

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

Would you please advise XXXXXXXXXX accordingly.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate