14 July 1997 External T.I. 9718975 - 104(6) DEDUCTION ON 94.1 INCOME

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:

Is section 94.1 income to a Cdn resident trust deductible for purposes of 104(6)?

Position:

Yes

Reasons:

Provided Trust indenture makes the amount in question payable, deduction may be taken.

L. Holloway
XXXXXXXXXX 971897

Attention: XXXXXXXXXX

July 14, 1997

Dear Sirs/Mesdames:

Re: Investment in an "Offshore Investment Fund Property" by a Trust

This is in reply to your letter of April 28, 1997, wherein you requested our views of the application of subsection 104(6) of the Income Tax Act (the "Act").

Specifically, you have outlined a situation where a trust that is resident in Canada and is described as either a "unit trust", as defined in subsection 108(2) of the Act, or a "mutual fund trust", as defined in subsection 132(6) of the Act, is required to impute income on an "offshore investment fund property" held by it pursuant to section 94.1 of the Act (the "imputed income"). You ask whether such a trust is able to deduct in computing its income for tax purposes pursuant to paragraph 104(6)(b) of the Act, an amount that is "paid" to a Canadian resident beneficiary (a "unitholder") in respect of that imputed income.

It is our understanding that certain types of income that are created or deemed to arise under the Act ("deemed income"), such as imputed income under section 94.1, cannot be defined as income for trust law purposes. However, depending on the facts and circumstances, such deemed income may be "paid or payable" within the meaning of subsection 104(24) of the Act in the year, if the terms of the particular trust document specifically require such amounts to be paid or payable, or the trustee has sufficient discretion to make such amounts paid or payable and has exercised such discretion, so that the beneficiary has the right to enforce payment of the amount in the year.

Accordingly, assuming the requirements described above are met and subject to any general anti-avoidance rule considerations, it may be possible for a unit trust or a mutual fund trust, as described above, to make the imputed income under section 94.1 of the Act paid or payable to the unitholders, within the meaning of subsection 104(24) of the Act. Where this occurs, such a trust can deduct the amount under paragraph 104(6)(b) of the Act and unitholders will be required to include in their income such amount as became paid or payable to them pursuant to paragraph 104(13)(a) of the Act.

These comments represent our opinion of the law as it applies generally and as indicated in paragraph 22 of the Information Circular 70-6R3 dated December 30, 1996, we caution such opinion is not a ruling and accordingly, it is not binding on Revenue Canada.

We trust that our comments will be of assistance to you.

Yours truly,

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