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.
D.S. Delorey
(613) 957-3495
19(1)
June 29, 1990
Dear Sirs:
This is in reply to your letter of June 4, 1990 concerning the computation of a preferred beneficiary's share under subsection 104(15) of the Income Tax Act (the "Act") and section 2800 of the Income Tax Regulations (the "Regulations").
We note that your enquiry relates to a specific proposed transaction. As explained in Information Circular 70-6R, the Department is not prepared to provide written opinions on proposed transactions other than in reply to advance ruling requests submitted in the manner set out in that Circular. The following comments are general in nature and may or may not apply to your situation.
Where there is a power of encroachment on capital for the benefit of any beneficiary, it is our view that the trust is discretionary and preferred beneficiary elections will be governed by paragraph 104(15)(c) of the Act and section 2800 of the Regulations.
Where a trust is settled upon a child and section 2800 of the Regulations applies, the child's share of the accumulating income of the trust for a taxation year will normally be determined under paragraph 2800(3)(f) of the Regulations. Where grandchildren will share in the accumulating income of the trust once the child dies, it is our view that those grandchildren must be taken into consideration in determining the child's share under paragraph 2800(3)(f). For example, if there are 3 grandchildren at the end of a particular taxation year and the child is alive at that time, the child's share would be 1/4 of the accumulating income of the trust for that year and the grandchildren's share would be nil.
In this latter regard, we refer you to paragraph 21 of Interpretation Bulletin IT -394R.
The above views are reflected in the enclosed copy of Income Tax Ruling ATR-30.
Our comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 24 of Information Circular 70-6R. We trust however that they are of assistance to you.
Yours truly,
Director
Financial Industries Division
Rulings Directorate
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