4 March 1997 External T.I. 9625445 - AMOUNT PAYABLE BY A DISCRETIONARY 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:

1) Requirements to be met in order that an amount will be considered payable in the year to the beneficiary of a discretionary trust for the purposes of subsection 104(24).

2) Does the legal incapacity of a minor to personally sue to enforce payment of an amount owing by a trust affect whether an amount is payable to a minor beneficiary?

Position:

1) The trustees must exercise their discretion to apportion the trust's income among the beneficiaries in the trust's taxation year and the beneficiaries must advised of that right in the year.

2) No.

Reasons:

1) Requirements outlined in E9529647 dated February 26, 1997.

2) Where a minor has the legal right to be paid an amount by a trust, the law provides a mechanism whereby an adult may act on behalf of a minor to take action to enforce that right.

	                              	962544
XXXXXXXXXX		                                  C.R. Bowen

Attention: XXXXXXXXXX

March 4, 1997

Dear Sirs:

Re: Amount Payable by a Discretionary Trust to a Minor

We are writing further to your letter of July 19, 1996, wherein you requested our opinion on whether the legal incapacity of a minor beneficiary to personally bring action to enforce payment of the income of a discretionary trust would affect whether an amount is considered payable by the trust to the beneficiary for the purposes of subsection 104(24) of the Income Tax Act ("the Act"). We apologize for the delay in our response.

Our Comments

In order for the income of a discretionary trust to become payable in a taxation year to the beneficiaries of the trust, the trustees are required to exercise their discretion before the end of the trust's taxation year and the exercise of discretion must be irrevocable with no conditions attached to the beneficiaries' entitlement to enforce payment of the amount in the year. The apportionment of the trust's income to each beneficiary (e.g., all the income, a fixed percentage of the income, or a set amount) must also be established. Furthermore, the beneficiaries must be advised before the end of the trust's taxation year of the trustees' decision, including the apportionment of the trust's income to which the beneficiary is entitled in the year to enforce payment of (even if the actual amount is not known). In case of a minor beneficiary, the trustees may advise the legal guardian of the child's property of this right. Although legal rights may exist without being in writing, in our opinion, the trustees' exercise of discretion and notification given to the beneficiaries of their decision should be in writing (e.g., a resolution signed by the trustees, minutes of the trustees' meeting). Failure to do so will result in the trustees and the beneficiaries having to provide our Department with other satisfactory evidence to support their claim that amounts became payable to the beneficiaries in the year.

The fact that the actual amount of the income of a trust in a year can not be ascertained until after the end of the trust's taxation year due to administrative delays in obtaining the necessary information will not, in and by itself, result in an amount apportioned to a beneficiary in the year based on that income not being payable to the beneficiary in the year (as supported by the case Ginsburg vs M.N.R., 92 D.T.C. 1774, (T.C.C.)). However, where the income of a trust is not ascertainable at the year end because the amount of such income is dependent on some contingency or event occurring after that time, then based on our response to Question 55 of the Revenue Canada Round Table in the 1981 Conference Report, it is our view that, depending on the circumstances, a beneficiary may not have an enforceable right to demand payment of such an amount in that year.

As stated in your letter, the law provides a mechanism whereby an adult may act on behalf of a minor to take action to enforce the legal rights of that child. It is our opinion that the legal incapacity of a minor beneficiary of a trust to personally sue the trustees of a trust or otherwise personally bring action to enforce payment of an amount to which the beneficiary has a legal right to receive from the trust will not, in and by itself, affect whether an amount is considered payable by a trust to a minor beneficiary.

Once the trustees have exercised their discretion and advised the beneficiaries of their decision, payment by the trust in respect of the amount payable to each beneficiary may be made by issuing a cheque to the beneficiary. That cheque must not have any conditions attached to it, such as, postdating or an arrangement that it is not to be cashed for a specific time. Where the actual amount to be paid to a beneficiary is known before the end of the trust's taxation year, a cheque for that amount should be delivered to the beneficiary before the end of the year. However, where it is not possible to determine the actual amount to be paid to a beneficiary until after the end of the trust's taxation year due to administrative delays in obtaining the necessary information, a cheque should be delivered to the beneficiary once the amount is quantified. Where the beneficiary is a minor and the trust indenture so permits, the cheque may be delivered to the legal guardian of the minor's property.

These comments represent our opinion of the law as it applies generally. As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada.

We trust that our comments will be of assistance.

Yours truly,

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