14 August 1996 External T.I. 9527545 - BENEFICIARY OF A NON-RESIDENT TRUST

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:

Income tax treatment of periodic payments made out of a U.S. trust to a Canadian resident beneficiary.

Position:

No specific comments - very general comments only.

Reasons:

Question of fact - also dependent on U.S. federal and state law - since limited information is provided no specific comments can be provided.

		952754
XXXXXXXXXX	M. Cooke

Attention: XXXXXXXXXX

August 14, 1996

Dear Sirs:

Re: Application of Paragraph 104(13)(c) of the Income Tax Act

This is in reply to your letter dated October 19, 1995, wherein you requested our comments as to whether amounts paid out of a trust resident in the U.S. to a beneficiary of the trust who is an individual resident in Canada (herein referred to as "Canadian resident beneficiary") would constitute a distribution of capital by the non-resident trust to the Canadian resident beneficiary, within the meaning of subparagraph 104(13)(c)(ii) of the Income Tax Act (the "Act"). We apologize for the length of the delay in our response.

The facts in your letter appear to relate to either a completed transaction or a proposed transaction. Accordingly, the Department is unable to provide you with any specific comments on the income tax implications inherent in you particular situation without a complete review of all the relevant facts and information of the particular situation. Such a review would be made by your local Tax Services Office in respect of a completed transaction, or by this office where a transaction is proposed and is the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2 dated September 28, 1990 (as amended by special release dated September 30, 1992).

In order for the Department to be able to complete its review of your particular situation, as described above, the Department would require copies of the particular trust document(s). More particularly, since your situation involves a U.S. trust, the income tax consequences of any such distributions under U.S. federal and state laws, as far as they are ascertainable, would have to be reviewed as well as the potential application of the Income Tax Convention between Canada and the U.S to any such distribution. We can, however, provide the following general comments.

Pursuant to subsection 104(13) of the Act, a Canadian resident beneficiary of a foreign trust is generally only required to include in income those distributions from the trust that are on account of income. It is a question of fact as to whether a particular distribution from a trust is on account of income or capital. However, for a beneficiary to be able to receive a capital distribution from a trust, the beneficiary must have a capital interest in the trust as that term is defined in subsection 108(1) of the Act. Moreover, in some circumstances, sections 94 and 94.1 of the Act may require that an amount be included in the income of a Canadian resident beneficiary of a trust for a year even though no distribution has been made from the trust in that year.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate