28 April 1994 External T.I. 9411115 - ATTRIBUTION

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.

Principal Issues:

1.Is there double tax where 75(2) applies?

2.Is there a tax consequence where the trust pays the tax on the attributed income?

Position TAKEN:

No to both questions.

Reasons FOR POSITION TAKEN:

1.Attributed income under 75(2) is never income of the trust.

2.Routine.

		941111
XXXXXXXXXX	G. Kauppinen
(613) 957-4363
Attention:  XXXXXXXXXX

April 28, 1994

Dear Sirs:

Re: Subsections 75(2), 104(13) and 105(1) and paragraph 12(1)(x) of the Income Tax Act ("Act")

This is in reply to your facsimile transmission dated April 26, 1994 wherein you requested our opinion in respect of the above-noted provisions of the Act s.c. 1970-71-72, c.63 as amended consolidated to June 10, 1993.

Specifically, you have requested our views on the applicability of subsection 104(13) of the Act to a trust and its beneficiaries where subsection 75(2) of the Act is applicable to attribute all income or loss from property (or property substituted therefor) held by the trust and any taxable capital gain or allowable capital loss from the disposition of the property (or property substituted therefor) to the person who sold the property to the trust (the "vendor").

It is our view that where subsection 75(2) of the Act applies to attribute income to a person, that income is never income of the trust for tax purposes and consequently it cannot be taxable to the trust nor can it be paid or payable to any beneficiary of the trust pursuant to subsection 104(13) of the Act. The attributed income therefore becomes capital of the trust. However, any income earned on such attributed income will not itself be attributable to the vendor and will therefore be taxable to the trust to the extent that it is not paid or payable to any or all beneficiaries of the trust pursuant to subsection 104(13) of the Act or the subject of a preferred beneficiary election pursuant to subsection 104(14) of the Act.

You have also requested our views as to the applicability of paragraph 12(1)(x) or subsection 105(1) of the Act to the vendor where the terms of the sale of the property to the trust require the trust to pay to the vendor the amount of income tax payable on any income attributed to him or her pursuant to subsection 75(2) of the Act.

It is our opinion that such a provision would not result in an income inclusion to the vendor pursuant to either subsection 105(1) or paragraph 12(1)(x) of the Act. However, the sales agreement should specify that the payment is to be out of the capital and not the income of the trust. (This presumes that the trust indenture allows the trustee(s) of the trust to enter into such arrangements and to make such payments.) If the payment is out of trust income (i.e. income which was not subject to attribution as discussed above) it would be taxable in the vendor's hands pursuant to subsection 104(13) of the Act.

While we trust our comments are of assistance, as stated in paragraph 22 of Information Circular 70-6R2, they constitute an expression of opinion only and are not binding on Revenue Canada, Customs, Excise and Taxation.

Yours truly,

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

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