REASONS FOR JUDGMENT
Rabinovitch J.
I. INTRODUCTION:
[1] The present appeal concerns the time at which the taxation year of a trust that is wound-up ends.
[2] The appeal arose as a result of the issuance by the Minister of a notice of reassessment to the Appellant on March 11, 2026, in which he imposed a late-filing penalty under subsection 162(7) of the Income Tax Act (Canada) (“ITA”
). The essential facts relating to the imposition of such penalties are agreed by the parties.
[3] The Appellant was created as an alter-ego trust on November 23, 2005. It then wound-up its affairs on December 30, 2023.
[4] On December 15, 2022, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022 (the “2022 Amending Act”
) received royal assent. This legislation introduced new section 204.2 of the Income Tax Regulations (the “ITRs”
), which requires any trust, other than a trust described in any of paragraphs 150(1.2)(a) to (r) of the ITA, that is required to file an income tax return under subsection 150(1) of the ITA, to provide the Minister with certain information regarding their trustees, beneficiaries and settlors. Subsection 72(2) of the 2022 Amending Act indicated that section 204.2 of the ITRs was to apply to “taxation years that end after December 30, 2023.”
[5] The Appellant provided the information referred to in section 204.2 in the form of Schedule 15 of its T3 Trust Income Tax and Information Return, but only on October 24, 2025, approximately a year and a half after the return was due. I note that while section 204.2 of the ITRs does not state explicitly when this information must be provided, the reference in the provision to the “return of income”
required to be filed under subsection 150(1) of the ITA and the “requirement in paragraph (1)(a) to provide required information in respect of beneficiaries of a trust in a return [emphasis added],”
suggest that Parliament’s intention was that the information be provided with the trust’s income tax return and therefore before the expiry of the deadline for filing it (i.e. within 90 days from the end of the trust’s taxation year).
[6] In any event, it was not argued by the Appellant that the failure of section 204.2 of the ITRs to expressly address the above point should affect the outcome of this appeal. Instead, it takes the position that its last taxation year ended on December 30, 2023, because it ceased to exist at that time. The Appellant maintains that this year was therefore not a taxation year “that end[ed] after December 30, 2023”
within the meaning of subsection 72(2) of the 2022 Amending Act and that it was not required to comply with section 204.2 of the ITRs at all for that taxation year (i.e. that it did so on a purely voluntary basis). The Respondent disagrees.
II. ANALYSIS:
[7] The present appeal was argued on the basis of the common sense proposition that the term “taxation year”
, as used in subsection 72(2) of the 2022 Amending Act, must be defined by reference to subsection 249(1) of the ITA.
[8] I agree with this position. Subsection 42(3) of the Interpretation Act (the “IA”
) provides that “[a]n amending enactment, as far as consistent with the tenor thereof, shall be construed as part of the enactment that it amends.”
It is unclear to me whether this provision was intended to apply to the coming into force provisions of an amending statute (as opposed to only the text that is inserted into the other enactment referred to). That being said, in a recent decision handed down by Régimbald J. of the Federal Court, it was held that the answer to this question is yes. Moreover, even if this were not the case, paragraph 15(2)(b) of the IA would in my view lead to the same result. It provides that where an enactment (e.g. the ITA) contains an interpretation section or provision, it shall be read and construed as being applicable to all other enactments relating to the same subject-matter (e.g. the 2022 Amending Act) unless a contrary intention appears. There is no such contrary intention in the present case.
[9] Turning to subsection 249(1) of the ITA, the provision defines taxation year in the following manner:
In this Act, except as expressly otherwise provided, a “taxation year” is
(a) in the case of a corporation or Canadian resident partnership, a fiscal period;
(b) in the case of a graduated rate estate, the period for which the accounts of the estate are made up for purposes of assessment under this Act; and
(c) in any other case, a calendar year.
[10] The parties agree that the Appellant is not a testamentary trust, and that it is paragraph 249(1)(c) which applies here.
[11] The Appellant’s main argument, however, is that subsection 249(1.1) of the ITA creates an exception to the rule set out in subsection 249(1)(c). It states:
When a taxation year is referred to by reference to a calendar year, the reference is to the taxation year or taxation years that coincide with, or that end in, that calendar year.
[12] According to the Appellant, the above text shows that a trust that is dissolved has a short taxation year. I understand his point to be that subsection 249(1) is an example of a provision that “refers”
to a taxation year “by reference to a calendar year”
, given its preamble and the text of paragraph 249(1)(c). It follows, he says, a trust that dissolves before the end of a calendar year has a taxation year that does not end on December 31.
[13] The second of these assertions must be rejected. Even if subsection 249(1) was one of the provisions contemplated by subsection 249(1.1), it does not say anywhere or in any way that a trust has a taxation year that ends when it is dissolves.
[14] More importantly, however, the Appellant has not interpreted the first part of subsection 249(1.1) correctly. I agree that under one plausible interpretation of the words “taxation year is referred to”
and “by reference to a calendar year”
, paragraph 249(1)(c) refers to a taxation year (in the sense that it contains the words “a taxation year”
), and does this “by reference to”
a calendar year (in the sense of defining a taxation year of entities that are not covered by paragraphs 249(1)(a) and 249(1)(b) as a calendar year). There is, however, another way of reading the words used in subsection 249(1.1), namely, that they contemplate a situation where a particular taxation year is mentioned in the ITA and identified by the calendar year to which it relates (e.g. a provision referring to the “2026 taxation year”
of a taxpayer). In cases where the taxpayer is a corporation, Canadian resident partnership, or graduated rate estate with a fiscal period ending before December 31st, it is unclear which taxation year the legislator has in mind when it uses this type of language.
[15] The Appellant suggested in the hearing that if subsection 249(1.1) could be interpreted in the manner he put forward, it should be interpreted in this manner. I do not agree. The Supreme Court of Canada held that the ITA, like all statutes, must, like all statutes, be interpreted in a textual, contextual and purposive manner.[6]
[16] The context of subsection 249(1.1) includes the many instances in the ITA where taxation years are identified by reference to the calendar year to which they relate. A good example is paragraph (a) of the definition of the term “private corporation”
in section 89, which includes a corporation that was a private corporation at the commencement of its “1972 taxation year”
. These provide further support for the second interpretation I put forward above.
[17] With respect to purpose, the legislative history of subsection 249(1.1) is revealing. The language in the provision was initially introduced in 1944 as part of the definition of the terms “taxation year”
or “taxation period”
, which were added to the Income War Tax Act in 1944 in the form of then paragraph 2(w). It read as follows:
“Taxation year” or “taxation period” means a year or other fiscal period upon the income of which tax is by this Act, required to be assessed, levied or paid and a reference to the taxation year or taxation period of a certain calendar year is a reference to the taxation year or taxation period, as the case may be, ending in that calendar year [emphasis added].
[18] In 1948, the provision became subsection 127(2) of the Income War Tax Act, which read as follows:
For the purposes of this Act, the “taxation year” denoted by reference to any year is
(a) In the case of a corporation, the fiscal period ending in that year, and
(b) In the case of a any individual, the calendar year [emphasis added].
[19] This was then changed to a version resembling the current one in 1949:
For the purpose of this Act, a “taxation year” is
(a) in the case of a corporation, its fiscal period, and
(b) in the case of an individual, a calendar year,
and when a taxation year is referred to by reference to a calendar year the reference is to the taxation year or years coinciding with, or ending in, that year.
[20] The concluding words were eventually moved to subsection 249(1.1) in 2013.
[21] The words “taxation year or taxation period of a certain calendar year [emphasis added]”
and “denoted”
both demonstrate that the purpose of the provision was to address the concern I have identified above (i.e. to enable provisions identifying a particular taxation year by reference to a calendar year to be applied to taxpayers such as corporations whose taxation year is their fiscal period rather than the calendar year). There is no particular taxation year identified by its corresponding calendar year in subsection 249(1). Accordingly, is not a provision covered by subsection 249(1.1).
[22] In the course of the hearing, I noted that in the case of Katz Estate v. R. (“
Katz Estate
”
), Addy J. suggested in obiter that subsection 249(1) was not intended to apply to deceased individual. He wrote:
Notwithstanding that both counsel seem to share this view, I am not prepared to hold that, in the absence of a more express provision to that effect, a deceased taxpayer is, for taxation purposes, deemed to have a taxation year which ends at the end of the calendar year of his decease and, therefore, at a time when he no longer exists. It would seem more logical to conclude that, where section 249 refers to an individual, it must be taken to refer to an individual who is alive and that the deceased taxpayer’s taxation year would end at the date of his death although it would obviously not be a twelve-month period […].
[23] Assuming the above statements are correct, I wondered whether they should be applied by analogy to trusts governed by paragraph 249(1)(c). Ultimately, however, I have determined that the answer is no. A textual, contextual and purposive interpretation of the provision has led me to conclude that it does in fact cause the final taxation year of a trust to end on December 31st of the year in which it is dissolved.
[24] The text of subsection 249(1) is clear: the taxation year of a taxpayer covered by paragraph (c) is a calendar year-end. The calendar year ends on December 31st. In addition to the above, the insertion of the words “except as expressly otherwise provided,”
which were introduced in 2013 (and after Katz Estate was decided), also suggests that the provision was intended to be all encompassing. In other words, Parliament essentially said: “this is the rule, and I will say so when I do not wish for it to apply.”
And it has indeed done so. The ITA allows certain non-testamentary trusts to have a regular taxation year which does not end on December 31st (see e.g. the definition of “taxation year”
in subsection 149.1(1) and subsection 95(1), which are referred to in the technical notes to the legislation introducing the words “except as otherwise provided”
, as well as section 132.11). It also creates exceptional “deemed”
year-ends for such trusts (see e.g. subsection 128.1(4), which deals with a trust that has ceased to be a Canadian resident and subsection 104(13.4)(a), which deals with the death of the beneficiary of certain trusts).
[25] The context of paragraph 249(1)(c) also supports the view that the provision causes the last taxation year of a trust to end on December 31st of the year it is wound-up. There are many provisions in the ITA that would not make any sense if it did not have this effect. For example:
-
Subsection 132(6.2) of the ITA: This provision provides, very generally, that a trust that ceases to qualify as a mutual fund trust in a calendar year because it ceases to exist, is deemed to continue to be a mutual fund trust until the end of the calendar year. The technical notes released when it was introduced in 2001 make clear that the reason for this provision is intended to prevent various provisions in the ITA that require such status to be maintained throughout a trust’s taxation year from applying to a trust in the year it is dissolved. They state:
New subsection 132(6.2) applies where a mutual fund trust ceases to exist. The taxation year of the mutual fund trust (determined with reference to paragraph 249(1)(b)) is not affected by its termination, unless paragraph 132.2(1)(b) applies. Consequently, the last taxation year of a mutual fund trust under the existing income tax rules is generally the calendar year in which it terminates. This leads to unintended consequences under a number of provisions of the Act (including the capital gains refund measure in subsection 132(1), the exemption from the alternative minimum tax in subparagraph 127.55(f)(ii) and the exemption from Part XII.2 tax in section 210.1) that require that a trust be a mutual fund trust throughout a taxation year [emphasis added].
It should be noted that the equivalent of 249(1)(c) in 2001 was paragraph 249(1)(b) (at that time, it read “in the case of an individual, a calendar year”
).
-
Subsections 146(4), 146.3(3) and 146.4(5) of the ITA: Under these provisions, no tax is payable by a trust “for a taxation year if, throughout the period in the year during which the trust was in existence [emphasis added]”
it is an RRSP, RRIF or RDSP, respectively.
-
Subsection 250(6.1) of the ITA: This rule specifies that for the purposes of provisions of the ITA that apply to a trust “for a taxation year only where the trust has been resident in Canada throughout the year,”
where a Canadian resident trust ceases at any time to exist, the trust is deemed to be resident in Canada throughout the period that begins at that time and ends at the end of the year. Examples of this type of provision are paragraph 104(19)(c), subsection 104(20), paragraph 104(21)(c) and paragraph 104(22)(c).
[26] Lastly, and with respect to purpose, I believe Parliament wanted paragraph 249(1)(c) to cause the last taxation year of a trust that dissolves to end on December 31st. The Appellant suggested this was not the case, and that it would have wanted the year-end of a dissolved trust to reflect the reality that it no longer exists. I see the intuitive appeal of this argument, but do not accept it at the end of the day. Fundamentally, whether or not it is desirable for a trust to have an early year-end depends on the consequences of that early year-end, and one of the main consequences of a year-end for a trust under the ITA is the time it is required to file its income tax and information returns pursuant to paragraph 150(1)(c) of the ITA and section 204 of the Regulations. Both provisions provide that is within 90 days from the end of the trust’s taxation year. If the Appellant is correct, trusts would be required to file a tax return early in a year which risks being its most complicated from a compliance standpoint. Even if the trust’s property has been rolled out to one or more beneficiaries, it will be necessary to assemble the adjusted cost base information for each such property. I do not see why Parliament would have wanted this. Indeed, when trusts have an “unusual” deemed year end under other provisions of the ITA, it often provides expressly that this should not accelerate the time a return is required to be filed (see e.g. subsection 94(5.2) of the ITA, which applies when a trust ceases to be covered by the non-resident trust rules and therefore has a deemed year-end under subsection 128.1(4), paragraph 104(13.4)(c) of the ITA, which applies when a trust has a deemed year end due to the death of one of its beneficiaries, and subsection 251.2(7) of the ITA, which applies when a trust has a deemed year-end due to the occurrence of a loss restriction event).
[27] Before concluding, I point out that the Appellant suggested during the hearing that the Minister should have agreed to cancel the penalty assessed because the late filing in the present case was caused by misleading language in the T3 Trust Guide. As I explained to him, this Court does not have the jurisdiction to order the Minister to do this. I did, however, consider whether the fact that this guide was consulted could give rise to a due diligence defense. It should be pointed out that the Appellant’s agent confirmed during the hearing that it was he, and not the Appellant, that consulted this guide. The passage in question reads as follows:
When to file
The filing due date depends on the trust's tax year-end.
Tax year-end and fiscal period
Graduated rate estate
A graduated rate estate (GRE) can have a non-calendar tax year (the period for which the accounts of the estate are made up for purposes of assessment).
[…]
All other trusts
All other trusts are generally required to use a December 31 tax year-end. However, an exception is available for mutual fund trusts that elect to have a December 15 year-end. A mutual fund trust that previously elected to have a December 15 year-end can revoke the election. For more information, call 1-800-959-8281.
Deemed year-end rules for all trusts
There are other situations in which a trust would be subject to a deemed year-end that may affect its tax year-end. For example, if a trust ceased to be resident in Canada on June 14, 2023, a deemed year-end would be triggered and the trust would be considered to have a tax year from January 1 to June 14, 2023.
Tax tip
For certain testamentary and inter vivos trusts, a deemed tax year-end will occur upon the death of a particular beneficiary of the trust. For more information on the due date for filing the T3 return and payment of tax for the deemed tax year-end, see Form T1055, Summary of Deemed Dispositions (2002 and later tax years) section on page 46.
[28] I do not consider the consultation of the above passage to be sufficient to make out a due diligence defense. First, I do not find it unclear. It states, correctly, that a T3 must be filed within 90 days of the end of a trust’s taxation year. It then explains that trusts other than graduated rate estates usually have a December 31st year end, and that there are exceptions to this rule. It does not say anywhere that a trust that is dissolved has a deemed year-end. Second, the Appellant’s agent is a seasoned accountant and would have known that there is no rule in the ITA deeming a trust’s taxation year to end upon its dissolution. Finally, he would also have been aware that the Minister has issued several published statements regarding the time the taxation-year of a trust that is wound up ends. All of them take the same position as the Respondent.
III. CONCLUSION:
[29] For all of the above reasons, the appeal is dismissed. Given that it is governed by the informal procedure, no costs are awarded.
Signed this 22nd day of September 2026.
“Ryan Rabinovitch”
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