13 December 1993 Income Tax Severed Letter 9325355 - Meaning of "Grandchild"

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.

XXXXXXXXXX                                932535

Attention: XXXXXXXXXX

December 13, 1993

Dear Sirs:

Re: Subparagraph 108(1)(g)(iii) of the Income Tax Act (the "Act")

This is in reply to your letter of September 2, 1993 concerning: (1) whether a step-child of a natural child of the settlor would be considered to be a grandchild of the settlor for purposes of subparagraph 108(1)(g)(iii) of the Act; and (2) the effect of a divorce of the step-child's parents on a preferred beneficiary election required to be calculated pursuant to paragraph 105(15)(c) of the Act. We apologize for the delay in responding to your letter.

Your letter appears to relate to an actual situation and consequently should be the subject of an advance income tax ruling. Alternatively, if it relates to a completed transaction, it should be referred to the local district taxation office. Nevertheless, we offer the following general comments which may be of assistance to you.

In general, it is our position that the word "grandchild" in subparagraph 108(1)(g)(iii) of the Act would include a step- child of a natural child of a settlor. However, should the step-child's parents divorce we would no longer consider the step-child to be a "grandchild" of the settlor. The step- child would therefore cease to be a preferred beneficiary pursuant to subparagraph 108(1)(g)(iii) of the Act.

The preferred beneficiary election set out in subsection 104(14) of the Act, and as calculated in accordance with subsection 104(15) of the Act, is made in respect of a taxation year. Consequently, the determination of which beneficiaries are preferred beneficiaries is also made in respect of a taxation year.

Paragraph 104(15)(c) of the Act requires that all discretionary income beneficiaries be preferred beneficiaries (or would be preferred beneficiaries if they were resident in Canada or are registered charities). Therefore, should one beneficiary cease to qualify as a preferred beneficiary, the provisions of paragraph 104(15)(c) of the Act would no longer apply. Where paragraphs 104(15)(a), (b) and (c) do not apply, paragraph 104(15)(d) of the Act would apply, and therefore every preferred beneficiary's share of accumulating income for that taxation year would be nil.

This opinion is not an advance income tax ruling. It represents our opinion of the law as it generally applies and is provided in accordance with the procedures outlined in paragraph 21 of Information Circular 70-6R2.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts Division Rulings Directorate Legislative and Intergovernmental Affairs Branch