16 November 1989 Income Tax Severed Letter AC32773 - Testamentary 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.

19(1)                                          3-2773
                                                   D.S. Delorey
                                                   (613) 957-3495

November 16, 1989

Dear Sirs:

              19(1)
This is further to our (Delorey  19(1) telephone conversation on
November 7, 1989 and in reply to your letter of October 26, 1989
requesting an advance income tax ruling on behalf of the
referenced estate.

As indicated to you during our telephone conversation, we do not consider the issuance of an advance income tax ruling to be appropriate in this instance as there is no specific proposed transaction of the type contemplated in the guidelines set out in Information Circular 70-6R. The stated "proposed transaction" is that the estate will be deducting all of its income as either being paid or payable. We do not consider this fact to be a proposed transaction for advance income tax ruling purposes.

In any event, the four requested rulings either could not be given or could not be given in the format required. As discussed, requested rulings numbered 1, 2, and 4 could not be given because numbers 1 and 2 concern residency, which is a question of fact, and number 4 involves an administrative issue. Any ruling given in respect of request number 3 would contain provisos that would essentially render it a non-ruling. Nevertheless, we offer the following general comments.

Interpretation Bulletin IT-447 sets out the Department's guidelines with respect to the determination of the residency of an estate or trust. As indicated therein, where there is a sole executor (executrix) and that executor has been and will continue to be resident in Canada until the affairs of the estate are settled, the estate will generally be considered to be resident in Canada.

Where one of two beneficiaries of an estate is not resident in Canada, that fact is irrelevant except in the circumstances set out in paragraph 5 of IT-447 ; i.e, where the facts indicate that a substantial portion of the management and control of the estate rests with the non-resident beneficiary.

Where a testamentary trust resident in Canada has a taxation year that straddles two calendar years, any trust income that is payable by the trust in that taxation year to a beneficiary, whether or not resident in Canada, will be deductible by the trust under subsection 104(6) of the Act. By virtue of subsection 104(24) of the Act, and amount is not payable in a taxation year to a beneficiary unless it was paid in the year to the beneficiary or the beneficiary was entitled in the year to enforce payment thereof. Paragraph 6 of IT-286R2 discusses this "paid or entitlement" question in the context of whether or not income of a testamentary trust is considered to be payable in the "executor's year" (i.e, the initial 12 month period commencing with the settlor's death). As indicated therein, where the trust has been would-up and the final T3 return is filed for a period that terminates before the end of the executor's year, the income of the trust for that period is considered to have been paid to the beneficiaries in the calendar year in which that period ends.

It is a question of fact as to whether or not a testamentary trust has been wound-up. Where an executor requests a clearance certificate based on the return filed for the trust, the return will generally be considered to be the final return and the trust will be considered to have been wound-up during the executor's year, even where the actual distribution occurs shortly thereafter. Where such is the case, the income of the trust will be taxable in the beneficiaries' hands.

As indicated on page 3 of the 1988 Deceased Person's Income Tax Guide, the deceased's final return is required to be filed within six months of the date of death or on April 30 of the year following the year of death, whichever is the later. Where the final return is to be filed on the said April 30 and where an amended return showing no tax payable is to be filed under paragraph 164(6)(e) of the Act on that same date, any decision on whether or not to allow the final return to be filed showing no tax payable is no tax payable would be made by officials of the District Taxation Office at which the returns are to be filed.

The provisions of subsection 164(6) are discussed in IT-140R3 and on page 23 of the 1988 Deceased Persons' Income Tax Guide. The above comments reflect expressions of opinion only which, as indicated in Information Circular 70-6R, are not binding on the Department. We trust however that they will be of assistance to you.

The amount of $325 submitted with your request will be returned separately.

Yours truly,

Director Financial Industries division Rulings Directorate