TFSA - Form 3520A Types of Distribution

[zad888]

Hi,

Quoted from http://hodgen.com/phils-blog/

The question is simple: if the trust distributes all of its assets to a U.S. beneficiary now, what will be the income tax cost?

The tax rules that apply

A U.S. beneficiary has no U.S. income tax liability until receiving a distribution from the trust.

There are three categories of distributions:

Distributions of capital - This is tax-free to the beneficiary.

Distributions of current income - Income earned in the year in which it is distributed is taxed in the routine method that other income is taxed to the beneficiary. Dividends and interest are taxed at ordinary tax rates, and long term capital gain is taxed at a favorable rate.

Distributions of accumulated income - Income earned in prior years and distributed in the current year will be taxed at ordinary tax rates, to which is added an interest surcharge. :shock:


1) Does anyone have any idea if this last type of distribution is referring to the amount we enter in Part III line 18 of the trust balance sheet?
2) When filling out the balance sheet, do we include the current and previous years' interest income under the END OF TAX YEAR - line 18 Accumulated trust income?

Any insight would greatly be appreciated. Thanks.