6 January 1996 External T.I. 9640805 - TRUST AND CAPITAL GAIN

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:

How should capital gains earned on the residue of an estate be
taxed where a trust indenture does not specify that capital gains

are income of the trust ?

Position:

Those trusts that do not specify that capital gains are income of
the trust have their capital gains considered as part of the
trust capital under trust law and if such a trust realizes a
capital gain or a deemed capital gain, the taxable amount thereof
cannot be paid or payable to a beneficiary and thereby be
included in income unless the amount was received by way of

capital encroachment.

Reasons:

XXXXXXXXXX 5-964080

Attention: XXXXXXXXXX

January 6, 1997

Dear Sirs:

Re: Capital gains earned on the residue of an estate

This is in reply to your letter of December 10, 1996 concerning capital gains earned on the residue of an estate.

Your request outlines a factual situation involving a specific client. As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, our tax services offices consider requests for written opinions on completed transactions and provide over-the-counter advice and assistance on general matters. We are therefore not in a position to provide a definitive response to your specific fact situation.

Nevertheless, we offer the following general comments.

Trusts indentures that do not specify that capital gains are income of the trust have their capital gains considered as part of trust capital under trust law. If such a trust realizes a capital gain, the taxable amount thereof cannot be paid or payable to a beneficiary and thereby be included in income unless the amount was received by way of capital encroachment.

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, is not binding on the Department. We trust that our comments will be of assistance.

Yours truly,

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