16 December 1993 Income Tax Severed Letter 9310265 - Preferred Beneficiary

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.

XXXXXXXXXX                                 931026

Attention: XXXXXXXXXX

December 16, 1993

Dear Sirs:

Re: Paragraph 104(15)(c) of the Income Tax Act (the "Act")

This is in reply to your letter of April 1, 1993 in which you requested our opinion on the allocation of accumulating income to preferred beneficiaries pursuant to paragraph 104(15)(c) of the Act. We apologize for the delay in responding to your letter.

In response to your commentary, we offer the following general comments:

1. For paragraph 104(15)(c) of the Act to be applicable, each beneficiary entitled to a discretionary share of the accumulating income of the trust for a taxation year must be a preferred beneficiary (or would be a preferred beneficiary if that person were resident in Canada or is a registered charity). If a person who is not a preferred beneficiary (e.g., a living great, great grandchild) is entitled to a discretionary share of the accumulating income of the trust for a taxation year, paragraph 104(15)(c) of the Act will not be applicable to any preferred beneficiary for that taxation year. However, if a beneficiary, who is not a preferred beneficiary, is not entitled to a discretionary share of accumulating income for a taxation year of the trust, paragraph 104(15)(c) of the Act will still apply to any preferred beneficiary who is entitled to a discretionary share of the accumulating income for that taxation year.

2. In accordance with paragraph 2800(3)(f) of the Income Tax Regulations contingent preferred beneficiaries are included in the divisor when computing a preferred beneficiary's share of accumulating income pursuant to paragraph 104(15)(c) of the Act. However, contingent preferred beneficiaries are subject to the provisions of paragraph 104(15)(d) of the Act for that taxation year because their entitlement to a share of the accumulating income of the trust does not depend upon the exercise or non-exercise of a discretionary power. Rather, their entitlement is contingent on the possible happening of a future event and that event has not occurred as of the end of that taxation year.

These comments represent our general views with respect to the subject matter of your letter. They are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990.

We trust these comments will be of assistance.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts Division Rulings Directorate Legislative and Intergovernmental Affairs Branch