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:
Whether rental income earned from real property in an intervivos trust and allocated to a beneficiary of the trust would qualify under the definition of earned income found in subsection 146(1) of the Income Tax Act?
Position:
No
Reasons:
Rental income earned from real property in a trust and flowed through to a beneficiary of the trust would lose its character and would be considered by the beneficiary to be income from a trust and taxable under paragraph 12(1)(m) of
the Act
5-953113
XXXXXXXXXX Franklyn S. Gillman
Attention: XXXXXXXXXX
March 13, 1996
Dear Sirs:
Re: Income from a Trust - Earned Income
This is in reply to your letter dated November 23, 1995 wherein you requested clarification as to whether rental income earned from real property in an intervivos trust and allocated to a beneficiary of the trust would qualify under the definition of earned income found in subsection 146(1) of the Income Tax Act (the "Act").
The Act specifically provides for certain types of income to flow through a trust and retain their character. These include taxable dividends, taxable capital gains, foreign source income and pension income. However, the Act does not provide for the flow through of rental income to a beneficiary. Therefore, rental income received by a trust and allocated to a beneficiary will be considered by the beneficiary to be income received from a trust and would be taxable under paragraph 12(1)(m) of the Act.
The term earned income for purposes of a Registered Retirement Savings Plan ("RRSP") is defined at subsection 146(1) of the Act. It is the Department's view that rental income or loss from real property would be included in the calculation of earned income for RRSP contributions pursuant to paragraphs 146(1)(a)(iii) and (e)(ii) of the Act, respectively. However, income received by a beneficiary of a trust is not included in the definition of earned income at subsection 146(1) of the Act and accordingly would not be incorporated in the calculation of earned income for RRSP contributions.
We trust these comments will be of assistance.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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