13 September 1993 Income Tax Severed Letter 9324505 - Pooled Fund Trust Income

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                           932450
XXXXXXXXXX                                 P. Spice
                                           (613) 957-9853

Attention: XXXXXXXXXX

September 13, 1993

Dear Sirs:

Re: Regulation 5000(7) of the Income Tax Act (the "Act")

This is in reply to your letter and facsimile transmission of May 4, 1993 in which you ask several questions concerning the interpretation of the word "income" in paragraph (b) of the definition of "pooled fund trust" contained in the above-noted Regulation. Our answers to your specific questions follow.

Question 1.

         Does "income" include taxable capital gains?

Answer 1.

         In our view, net capital gains from the
         disposition of investments does not constitute
         income "derived from investments" for purposes of
         the income test in the above-noted provision.

Question 2.

         Does "income" include the gross-up amount in
         respect of taxable dividends?

Answer 2.

         Yes, except to the extent that the trust
         designates the dividend to be income of a
         beneficiary pursuant to subsection 104(19) 
         of the Act.

Question 3.

         Does income mean gross income or net income?

Answer 3.

         Subject to our comments in 5 below, "income", in
         the context of paragraph b of the definition
         "pooled fund trust", means net income as
         calculated under Part 1 of the Act.

Question 4.

         On what basis are the expenses of the trust
         (for example, legal and accounting expenses)
         to be allocated to each investment in
         determining the net income therefrom?

Answer 4.

         Expenses are applied directly to the income to
         which they relate.  Those that relate to more than
         one source of income should be apportioned on a
         reasonable basis to the applicable sources of
         income of the trust.  Reference can be made to
         Trust Schedule 9, Part A of the T3 Tax Return and
         Information Return.  Outlays and expenses that
         pertain to the capital assets of the trust are not
         allowable deductions from income.

Question 5.

         If all of the income of the trust is paid or
         payable to the beneficiaries so that pursuant
         to subsection 104(6) the income of the trust
         is nil, can the income test in paragraph (b)
         of the definition ever be satisfied?

Answer 5.

         It is our position that the deduction in paragraph
         104(6)(b) of the Act is not a required deduction
         from income for purposes of paragraph (b) of the
         definition of "pooled fund trust".

Question 6.

         Does "income" include interest which accrues
         on certain debt obligations and is included
         in income under section 12?  Does "income"
         include investment income which accrues on
         deferred annuity contracts and is included in
         income under section 12.2?

Answer 6.

         The pooled fund trust "income" under discussion
         includes income under both subsections 12(3) and
         12.2(1) of the Act.

The above comments are an expression of opinion only and therefore are not binding on the Department. We trust that they are of assistance to you, however.

Yours truly,

for Director Financial Industries Division Rulings Directorate