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.
Dear Sirs:
Re: Spouse Trust income payable to capital beneficiaries on death of spouse
This is in reply to your letter of February 19, 1991 requesting confirmation of your interpretation of specific sections of the Income Tax Act (the "Act") relating to a spousal trust.
As noted in Information Circular 70-6R2, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling request. As a consequence thereof, we may only offer the following general comments.
As stated in paragraph 3 of interpretation bulletin IT-286R2 "In computing income for a taxation year a trust described in paragraph 104(4)(a) is, by virtue of paragraph 104(6)(b), prevented from deducting such part of its income as was payable in the year to a beneficiary out of taxable capital gains or other income arising as a consequence of a disposition of property under subsection 104(4)". As such, we agree with your statement that "the taxable capital gains deemed realized on the deemed disposition of the shares on the death of the surviving spouse cannot be part of the amount deducted by the trust under 104(6)(b)." We also agree that the capital loss incurred subsequent to the death of the spouse but prior to the trust's year-end are applied to the capital gains of the trust for the year.
The deemed dividend resulting from the redemption of the shares of the private Canadian Corporation is considered to be a taxable dividend under subsection 89(1)(j) of the Act and would be included in computing income of the trust.
It is a question of fact whether or not the income resulting from the deemed taxable dividends has become payable to a beneficiary in the year. Under the terms of a spousal trust in subsection 104(4)(a)(iii) the spouse is entitled to all income up to their date of death. As the deemed dividends are the result of a transaction subsequent to the death of the spouse they cannot be considered to be paid or payable to the spouse in the year. To determine whether the deemed dividends are payable to any other beneficiary in the year would depend on the terms of the trust.
We trust that these comments will be of assistance to you.
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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