Paid or payable – that is the question


Written on April 8, 2013 – 7:00 am | by Derek de Gannes

The Canada Revenue Agency (CRA) was recently asked to comment on whether it considers an amount was “payable” and evidenced by a promissory note thus deductible in the calculation of the income of a trust and added to the income of a minor child.

The CRA had the following comments:

- A promissory note is given and received as acknowledgement of the existence of and/or the conditional payment of a debt and does not create the debt.

- A promissory note should only be issued by a trust to a beneficiary as evidence of an amount payable to the beneficiary where the trust indenture (or relevant provincial legislation where the indenture is silent on the issue) permits the trustees of the trust to do so.

- Although a promissory note issued by a trust in respect of an amount payable to a beneficiary may be non-interest bearing, it must be payable on demand without restriction. Where the actual amount that is payable to a beneficiary is known before the end of the trust’s taxation year, the promissory note should also be delivered to the beneficiary before the end of the year.

- Where it is not possible to determine the actual amount that is payable to a beneficiary until after the end of the trust’s taxation year due to administrative delays in obtaining the necessary information, the promissory note should be delivered to the beneficiary as soon as the amount is quantified.

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