25 March 1997 External T.I. 9633875 - TRUSTS FOR MINOR

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 subsection 104(18) is applicable to a particular trust arrangement

Position:

General comments provided

Reasons:

XXXXXXXXXX		                            963387

Attention: XXXXXXXXXX

March 25, 1997

Dear Sirs:

Re: Subsection 104(18)

This is in reply to your facsimile of October 10, 1996, wherein you requested our comments with respect to the application of subsection 104(18) of the Income Tax Act (the "Act"). All references herein are to the Act.

Your letter appears to describe a factual transaction. As noted in our Information Circular 70-6R3, we do not issue opinions in respect of factual transactions other than as a reply to an advance income tax ruling request. Consequently, we will only offer the following general comments.

Pursuant to subsection 104(18), income of a trust resident in Canada throughout the taxation year that has not become payable in the year is deemed to be payable for purpose of subsections 104(6) and (13) where

(1) the individual is less than 21 years of age at the end of the year;

(2) the individual's right to the income is vested by the end of the year otherwise than because of the exercise or the non-exercise of a discretionary power; and

(3) the individual's right is not subject to any future condition (other than a condition that the individual survive to an age not exceeding 40 years).

The issue of whether a right to income is vested otherwise than because of the exercise or non-exercise of discretionary power, as required by paragraph 104(18)(c), requires an examination of the trust agreement. (You may wish to refer to Hashman Trust v. M.N.R., 72 DTC 1191 (TRB) and Cole Trust v. M.N.R., 81 DTC 8 (TRB) for consideration of whether a right to income is vested.)

If, however, that right is vested in accordance with paragraph 104(18)(c), then in our view, there is no requirement in subsection 104(18) that the terms of the trust provide for a distribution before the beneficiary reaches the age of 40 years. In this regard we note that paragraph 104(18)(d) provides, in effect, that subsection 104(18) does not apply to a beneficiary where a beneficiary's vested rights to trust property can be extinguished because of those rights being subject to a future condition. However, an exception is provided for any future condition that the beneficiary survive to an age that does not exceed 40 years. It is our understanding that the intent of paragraph 104(18)(d) is to allow a beneficiary's vested rights to property to be extinguished if the beneficiary dies before attaining 40 years of age.

We trust our comments will be of assistance to you.

Yours truly,
A/Section Chief
Resources, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch