13 January 1998 External T.I. 9708735 - PAYMENTS TO A SUB-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:

Are payments to a trust meeting the criteria in subsection 104(18) deductible by the trust under paragraph 104(6)(b) as a payment to the minor beneficiary?

Position:

Generally no.

Reasons:

There is no assurance that the payments meet the criteria set out in Income Tax Technical News No. 11.

970873
XXXXXXXXXX T. Murphy

January 13, 1998

Dear Sir:

Re: Trust Payments

This is in reply to your letter of March 19, 1997, concerning paragraph 104(6)(b) and subsection 104(18) of the Income Tax Act (Canada) (the "Act").

Specifically, you have asked whether a trust will be entitled to a deduction under paragraph 104(6)(b) of the Act if payments of the net income of the trust are made payable to a second trust which complies with the criteria set out in subsection 104(18) of the Act.

The trust proposing to make the payments in your letter would be governed by the provisions of subsections 104(6), 104(13) and 104(24) of the Act, all of which refer to amounts payable in the year "to a beneficiary." Where the beneficiary of a trust is a minor, the Department accepts that third party payments meeting the criteria set out in the attached copy of Income Tax Technical News No. 11 may be deducted by the trust under subsection 104(6) of the Act and will be included in the minor's income under subsection 104(13) of the Act.

We cannot conclude that a payment to a trust meeting the criteria set out in subsection 104(18) of the Act is an indirect payment to the minor such that the trust would be entitled to a deduction under paragraph 104(6)(b) of the Act.

Such a determination would be a factual one and would include consideration of whether the requirements set out in Income Tax Technical News No. 11 are met. In particular, given that with a trust meeting the criteria in subsection 104(18) of the Act there is no requirement that the minor's rights to income vest indefeasibly prior to age 40 or that the minor have any rights to capital (other than accrued income), we question that payments to such a trust would be for the benefit of the minor. Thus, the actual terms of the trust would be relevant in arriving at an answer to the question for any particular situation.

We trust our comments will be of assistance to you.

Yours truly,

R.S. Biscaro
Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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