CRA indicates that a s. 94(3)(f) election can be filed with a very late return, likely including a return filed after an arbitrary assessment

The s. 94(1) definition of “electing trust” provides that, with a non-resident trust’s return for the first taxation year in which it is deemed by s. 94(3)(a) to be a resident trust, the trust can elect to reduce its taxable income by being deemed by s. 94(3)(f) to be a “non-resident trust” respecting a portion of its property.

CRA indicated that where it is proposing to assess a non-resident trust on the basis that it has been deemed by s. 94(3)(a) to be a resident trust from Year X onwards, the trust is still entitled to make such election on filing a return for that year, even if filed many years after Year X. Even if CRA first made an arbitrary assessment under s. 152(7) of Year X, CRA noted that such arbitrary assessment did not eliminate the obligation to file a return - with the implication that, again, such late return could be accompanied by a valid election.

CRA also indicated that the above interpretation – effectively, that the non-resident trust can lie in the grass for some time, and still be permitted to file a late election (with a late return) when CRA catches up to it – was contrary to what Finance intended, as reflected in the Explanatory Notes.

Summaries of 8 September 2022 Internal T.I. 2021-0892791I7 under s. 94(3)(f) and s. 152(7).