Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: At last year's STEP conference, we addressed the issue of whether a trust that only held property that was subject to subsection 75(2) of the Act was required to file a T3 return. As stated in the 2004 and 2005 T3 Guides, a trust that holds property that is subject to subsection 75(2) of the Act is required to file a T3 return regardless of whether or not it has tax payable or meets any of the other conditions relating to dispositions and distributions of trust property that would give rise to an obligation to file an income tax return. Certain commentators have challenged your position on this issue, on the basis that subsection 150(1.1) of the Act provides an exemption for individuals, which presumably includes trusts, that have no tax payable for a particular taxation year. Can you comment any further on this issue?
Position: A T3 return is required whenever 75(2) applies to attribute any of the income of the trust to a contributor.
Reasons: Section 221 of the Act contains a broad range of prescribing powers, including the powers to promulgate regulations imposing requirements to file information returns. Therefore, given the nature of the T3 return as both a return of income and an information return, the statutory requirement to file a T3 return exists where the trustee has control of or receives income, gains or profits in the trustee's fiduciary capacity, even if the trustee computes nil income for the trust for tax purposes. This includes circumstances where the trust has no income for tax purposes because of subsection 75(2) of the Act.
2006 STEP Round Table
Q3. Obligation to File Tax Returns
At last year's STEP conference, we addressed the issue of whether a trust that only held property that was subject to subsection 75(2) of the Act was required to file a T3 return. As stated in the 2004 and 2005 T3 Guides, a trust that holds property that is subject to subsection 75(2) of the Act is required to file a T3 return regardless of whether or not it has tax payable or meets any of the other conditions relating to dispositions and distributions of trust property that would give rise to an obligation to file an income tax return. Certain commentators have challenged your position on this issue, on the basis that subsection 150(1.1) of the Act provides an exemption for individuals, which presumably includes trusts, that have no tax payable for a particular taxation year. Can you comment any further on this issue?
Response
A T3 Trust Income Tax and Information Return is both a return of income and a general information return. A T3 trust return serves to report not only information about the reporting trust, but also additional information, such as that affecting the taxation of persons (for example, beneficiaries or settlors) having some connection to the trust.
Consistent with this is the additional requirement for the trust to issue a T3 slip to persons whose own income tax requirements may be affected by arrangements involving the trust. These persons include those to whom an amount is attributed from the trust under one of the statutory attribution rules. The information provided under these reporting mechanisms is necessary for the proper administration of the tax system.
These specific reporting requirements are imposed by section 204 of the Income Tax Regulations. The statutory power to promulgate this regulation is not limited to section 150 of the Act - which speaks directly to the requirements for income tax returns - but is also found in section 221 of the Act. Section 221 of the Act contains a broad range of prescribing powers, including the powers to promulgate regulations imposing requirements to file information returns. Therefore, given the nature of the T3 return as both a return of income and an information return, the statutory requirement to file a T3 return exists where the trustee has control of or receives income, gains or profits in the trustee's fiduciary capacity, even if the trustee computes nil income for the trust for tax purposes. This includes circumstances where the trust has no income for tax purposes because subsection 75(2) of the Act applies to recognize amounts as another person's for tax purposes.
The annual T3 Guide published by the CRA provides more specific detail on how a trustee should report amounts that are attributed under subsection 75(2) of the Act.
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