CRA permits a trust to make a late-filed s. 104(13.1) or (13.2) designation to access subsequent years’ losses

CRA considers that the new s. 104(13.3) rule establish that a trust can only make designations under s. 104(13.1) or (13.2) to apply non-capital or capital losses of other years to bring taxable income down to nil. But what if the loss in question has not yet arisen?

CRA accepts that if a trust has pushed out income to its beneficiaries in Year 1 and in, say, Year 3, realizes a non-capital or capital loss, it can amend its return for Year 1 to include income, which it previously had pushed out to its beneficiaries, in its income, thereby resulting in net income that can be offset by a loss carryback – and with the beneficiaries' returns then being reassessed to exclude the previous inclusion under s. 104(13).  This is premised on there being no retroactive tax planning involved and on the  years in question not being statute-barred.

Neal Armstrong. Summary of 19 September 2015 STEP Roundtable, Q.5 under s. 104(13.1).