In technical interpretation 2019-0833061E5 (January 27, 2020), the CRA stated that, where a trust receives a dividend of $2,500, $1,000 of which is ‘safe’, it cannot designate the safe portion to a corporate beneficiary and the rest to an individual beneficiary. Rather, each taxpayer would receive its proportionate share of the safe income.
The author argues that, given the wording of subsection 104(19), a trust should be able to make a designation for each dividend it receives, even if the dividends are received in the same taxation year. On this view, if the corporate payer paid a $1,000 safe income dividend and a $1,500 unsafe dividend, the trust recipient would be entitled to designate the first dividend to the corporate beneficiary and the second only to the individual. (Separate designations under the subsection would obviously be possible if the dividends were paid in different taxation years of the trust.)
The author, however, notes that the CRA takes a narrow view of the ability of trusts to allocate income and designate its type for tax purposes.
Éric Hamelin, “Trusts and Safe-Income Allocation” 20:4 Tax for the Owner-Manager (October 2020)
