17 September 1993 External T.I. 9314345 F - Preferred Beneficiary Election

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.

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Attention:  XXXXXXXXXX

Dear Sirs/Mesdames:

RE:  Common Disaster Clause and Subsection 104(14) of the Income Tax Act (the "Act")

This is in reply to your letter of May 12, 1993 concerning the inclusion of a "common disaster clause" as a term of a fully discretionary inter vivos trust and the implications of such a clause for purposes of a preferred beneficiary election under subsection 104(14) of the Act.  We apologize for the delay in responding to your letter.

Your request appears to relate to a transaction entered into by a specific taxpayer. As indicated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 (the "Circular"), a request for a written opinion on a completed transaction is generally considered by the taxpayer's local district taxation office. Therefore, while we are unable to provide an opinion in respect of the situation outlined in your letter, we are prepared to offer the following general comments.

In a situation where all the non-contingent beneficiaries of a fully discretionary inter vivos trust are preferred beneficiaries (as defined in paragraph 108(1)(g) of the Act) of both the income and capital of the trust and the contingent capital beneficiaries 1) are not preferred beneficiaries ("non-preferred beneficiaries"), 2) have no entitlement, either on a discretionary or non-discretionary basis, to the annual trust income and 3) will receive the assets of the trust only in the event of the death of all preferred beneficiaries in a common disaster, it is our opinion that the existence of such contingent non-preferred beneficiaries is irrelevant for the purposes of subsections 104(14) and (15) of the Act. If there is accumulating income in the trust for a taxation year and the preferred beneficiaries are alive at the end of that taxation year, the provisions of paragraph 104(15)(c) of the Act and paragraph 2800(3)(f) of the Income Tax Regulations would apply to determine the preferred beneficiaries' share of that income.

In this regard, the fact situation described in the enclosed Income Tax Ruling ATR-30 dealing with the subject of a preferred beneficiary election on accumulating income of an estate includes contingent capital non-preferred beneficiaries (i.e., sisters of the deceased). Page 3 of that ATR states:

"Please note that the fact that some of the contingent beneficiaries, namely the Sisters of the Deceased, are not preferred beneficiaries does not affect the applicability of the provisions of paragraph 104(15)(c) of the Act to the Daughter and the Son for 1986 (i.e., preferred beneficiaries) since the contingent beneficiaries' share of accumulating income for that year does not depend on the exercise or non-exercise of a discretionary power."

These comments represent our opinion of the law as it applies generally. As indicated in paragraph 21 of the Circular, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada Customs, Excise and Taxation.

We trust that our comments will be of assistance.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

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