13 June 1995 Internal T.I. 9514227 - PAYMENT INTO COURT BY AN ESTATE FOR DECEASED'S CHILDREN SECTION 104(24)

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. Will an amount of pension income receivable by an estate that is paid pursuant to a court order into the court for the benefit of the deceased's minor children be considered an amount that became payable in the year by the estate under paragraph 104(6)(b) and subsection 104(24)?

2. Will subsection 104(18) be applicable in respect of that payment?

Position TAKEN:

1.Such a payment will not be deductible to the estate under paragraph 104(6)(b) and subsection 104(24).

2.Subsection 104(18) is not applicable to the payment.

Reasons FOR POSITION TAKEN:

1.The beneficiaries of the estate are the children by virtue of the court order. In order to be deductible to the estate, the payment must be made to the children and it was not (it was made into the Court).

2.In order for the provision to apply, the amount must, if the beneficiaries were not minors, otherwise be payable to them and not the Court.

		June 13, 1995

	Client Services                       	Trusts Section
	A/Assistant Director 	C.R. Bowen
	Jola Marcon         	(613) 957-8585
	Windsor Tax Services
	2nd Floor

Attention: Mrs. Diane Masaro 951422

Client Assistance

XXXXXXXXXX

We are writing in reply to your facsimile of May 25, 1995, wherein you requested our comments on the income tax consequences of the fact situation submitted to you in a letter dated March 8, 1995 from the law firm of XXXXXXXXXX on the above-noted subject.

Our understanding of the fact situation is a follows:

XXXXXXXXXX

XXXXXXXXXX

Issues

1.Should the pension death benefit be reported in the Estate's 1994 T3 trust income tax return?

2.Is the amount of the pension death benefit paid into the Court for the children a deduction from the Estate's income under paragraph 104(6)(b) of the Income Tax Act (the "Act")?

3.What method should be used to allocate the life insurance (non-taxable) and the pension death benefit (taxable) among the parties since the court order did not specify who was to receive which amounts?

4.Should the pension death benefit be reported by the children in their 1994 T1 income tax returns?

Our Comments

1.Since the T-4A slip issued does not indicate that the amount paid was a "death benefit" as defined in subsection 248(1) of the Act and it appears that the amount was paid out of a pension fund, it is presumed that the payment is a "superannuation or pension benefit" as defined in subsection 248(1) of the Act. However, the legal representative of the Estate may wish to confirm this point in view of the $XXXXXXXXXX deduction that would be available to the Estate if the payment met the definition of "death benefit".

We agree with the comment in your handwritten note that the gross amount of the pension death benefit indicated on the T-4A slip must be included in the Estate's income for 1994.

2.In determining whether an amount is deductible under paragraph 104(6)(b) of the Act to a trust, that amount must have become payable in the year to a beneficiary. Subsection 104(24) of the Act provides that an amount shall become payable in the year to a beneficiary only if one of the following two conditions are met: i) the amount is paid in the year to the beneficiary or ii) the beneficiary was entitled in the year to enforce payment of the amount from the trust.

In the fact situation, the children became beneficiaries of the Estate by virtue of the court order. However, since the payment by the Estate has been made into the Court (and held in trust for the Crown) and not to the children, the first condition has not been met. The second condition has also not been met since the Court and not the children are entitled to receive or enforce payment of that amount from the Estate. Consequently, there will be no deduction to the Estate under paragraph 104(6)(b) of the Act for the amount paid into the Court in respect of the pension death benefit and the Estate will be subject to income tax on the entire amount.

In Ontario, the Public Guardian and Trustee participates in making the decisions on payments being made into and out of the Court for the benefit of minor children. If there is no money left in the Estate to pay the additional income tax owing on the pension death benefit, it is our understanding that the administrators of the Estate can and should apply under the applicable provincial legislation to the Public Guardian and Trustee for permission to have the additional income tax paid out of the amounts held in trust for the Crown for the children.

While it initially appears that subsection 104(18) of the Act should apply in respect of the amount paid into the Court, that provision can only apply where the amount of income of a trust would, if the beneficiaries were not minors, otherwise be payable to them. As stated above, the amount did not become payable by the Estate to the children but was paid into the Court. Thus, the provision does not apply.

Of course, if subsection 104(18) of the Act did apply to the payment made by the Estate, then the amount would be deductible to the Estate under paragraph 104(6)(b) of the Act and included in the children's income. While the children are entitled to the amount paid into the Court, the money is not payable to them until such time as it is ordered payable by the Court or is paid out of the Court. Therefore, it would not be possible to collect the income taxes owing by the children (assuming they had no other source of income) unless the Public Guardian and Trustee allowed that payment to be made. In addition, the Crown would not be subject to income tax on the amount it received in trust for the children by virtue of its immunity/prerogative.

3.In view of the answer to #2 above, we have not addressed the issue of how to allocate taxable and non-taxable amounts between the parties since the entire amount of the pension death benefit must be included in the Estate's income.

4.As stated above, the children are not required to report any amount of the pension death benefit in their income.

XXXXXXXXXX If you have any questions or you require further assistance, please call Catherine Bowen at (613) 957-8585. We trust that our comments will be of assistance.

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch