CRA confirms that no particular T3 disclosure is required where all the interests in a trust have vested indefeasibly

Para. (g) of the definition of a trust effectively provides an exemption from the 21-year deemed disposition rule in s. 104(4)(b) where all interests in the trust in question have vested indefeasibly, subject to exceptions.

CRA indicated that its comments in 2018-0744111C6, as to what is required in order for an interest in a trust to vest indefeasibly, still apply: the situation must be one where the beneficiary can be ascertained and there is no condition precedent to the beneficiary holding such trust interest; and there must be no condition subsequent or possible future event or limitation that could revoke, limit or defeat the beneficiary’s interest in the trust.

After also indicating that the T3 return does not request information on whether all of a trust’s interests have vested indefeasibly, CRA noted that those handling CRA’s intake and assessment of T3 returns have seen various approaches including a covering letter or a note on the top of the return explaining why no T1055 form was being filed (or simply stating that all interests had vested indefeasibly), or filing a blank T1055 along with such a note.

Finally, CRA provided a reminder that where a beneficiary’s indefeasibly vested capital interest is disposed of on death pursuant to s. 70(5), s. 107.4(4) deems the fair market value proceeds thereof to be no less than the beneficiary’s pro rata share of the fair market value of the total net assets of the trust immediately before the death.

Neal Armstrong. Summaries of 15 June 2021 STEP Roundtable, Q.6 under s. 108(1) – trust – s. (g) and s. 70(5).