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.
1.authority of trustees to make a preferred beneficiary election
2.ordering of will clauses
3.calculation of preferred beneficiary election where default clauses very broad
4.whether potential appointee under special power of appointment is a beneficiary prior to actual appointment
1.trustees had the authority to make election
2.logically read in succession
3.preferred beneficiaries included all those potential residuary default beneficiaries
4.issue researched but no conclusion drawn as ruling was withdrawn on issue 3
2.consultation of research material
3.previously published positions and consensus of trusts section
4.issue not addressed in final as request withdrawn
XXXXXXXXXX L. Holloway
March 13, 1996
This letter is further to our discussion on March 11, 1996, (Holloway/XXXXXXXXXX) concerning the advance income tax ruling request submitted on behalf of the XXXXXXXXXX and the beneficiaries of the XXXXXXXXXX Trust. All references herein under will be to the Income Tax Act unless otherwise indicated.
The application of subsections 104(14) and (15) together with Regulation 2800(3)(f) in any particular situation will depend on whether:
i)a preferred beneficiary of a trust is entitled to a share of the accumulating income of the trust, and
ii) such share of the accumulating income of the preferred beneficiary is dependent upon the exercise of, or failure to exercise, a discretionary power under the trust.
Regulation 2800(3)(f) provides the formula for determining the discretionary share of the trust's accumulating income of a preferred beneficiary described in paragraph 104(15)(c) who is other than the settlor of the trust and/or his or her spouse.
Where a beneficiary of a trust is subject to the provisions of paragraph 104(15)(c), the Department has expressed the following opinions:
a)the number to be used as divisor in the calculation pursuant to Regulation 2800(3)(f) will include any preferred beneficiary who is alive at the end of the particular taxation year of the trust;
b)since Regulation 2800(3)(f) is not subject to the exception described in Regulation 2800(4), this number will also include all contingent preferred income beneficiaries alive at the end of the year, including those whose rights are contingent on the death of another preferred beneficiary, as they may be entitled to share in the accumulating income of the trust;
c)this number will also include all capital preferred beneficiaries and all contingent capital preferred beneficiaries alive at the end of the year where the trust document does not specify that capital receipts by the trust, such as taxable capital gains, will be considered income for trust purposes, as they too may be entitled to share in the accumulating income (capital gains) of the trust; and
d)despite the inclusion of a capital preferred beneficiary in the number by reason of the situation described in c), the share of such beneficiary in the accumulating income of the trust for a particular year would depend on whether there is a capital gain realized by the trust in that year. Generally, where no capital gain was realized in the year, such share would be nil and an election under subsection 104(14) in respect of such capital beneficiary would have no tax consequences.
The definition of preferred beneficiary in subsection 108(1) makes the settlor, XXXXXXXXXX the reference point. In this case, XXXXXXXXXX his issue, his spouse and his siblings, their spouses and their issue are all preferred beneficiaries. The spouse of XXXXXXXXXX is a contingent income and capital beneficiary, with her contingency based upon her husband's discretionary ability to appoint her as a beneficiary upon his death. The siblings of XXXXXXXXXX their respective spouses and their issue are also contingent income and capital beneficiaries of the XXXXXXXXXX Trust as paragraph
XXXXXXXXXX and his issue (including children, grandchildren and great-grandchildren) would be subject to paragraph 104(15)(c) in respect of any capital gain recognized by the XXXXXXXXXX trust as there is a wide capital encroachment power available in their favour. XXXXXXXXXX spouse, would fall under paragraph 104(15)(d) as her interest is ultimately contingent upon her husband's death. All other preferred beneficiaries would also fall under paragraph 104(15)(d) because their shares of accumulating income are also dependant on the potential happening of a future event, the death of XXXXXXXXXX without issue.
As pursuant to Regulation 2800(3)(f) all preferred beneficiaries must be included in the divisor, the divisor in the calculation will include all the preferred beneficiaries mentioned above even though a particular beneficiary's share of accumulating income would be nil by virtue of paragraph 104(15)(d). Thus, we do not agree that the subsection 110.6(19) deemed capital gain, which will form part of accumulating income, may be divided equally between XXXXXXXXXX and his three adult children via preferred beneficiary elections.
For an example of an operation of these provisions in another scenario we enclose a copy of published ATR-30 for your reference.
These comments represent our opinion of the law as it applies generally. Please consider the above comments in the context of your ruling request and advise us as to any decision you make concerning the outcome of that request.
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Policy and Legislation Branch
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