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: WHY ARE T3 SLIPS TYPICALLY RECEIVED AFTER T5 SLIPS?
Position: T3 SLIPS ARE DUE 90 DAYS AFTER THE TRUST'S YEAR END, WHICH IS EITHER DEC 15 OR DEC 31 FOR AN INTER VIVOS TRUST. A T5 SLIP IS DUE BY THE LAST DAY IN FEBRUARY
Reasons: 150(1)(C) AND REGULATION 204
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Dear Colleague:
Thank you for your letter received on February 16, 2007, written on behalf of one of your constituents, in which you ask various questions concerning the annual information slips received by investors from income trusts and limited partnerships.
More specifically, you state that your constituent typically receives T3 information slips in respect of the units of one or more income trusts that he holds at a date later than the date on which he receives his T5 information slips for his other investments. In addition, in at least one instance, the T3 information slips he received for 2004 and 2005 were incorrect which made him have to file amended tax returns for those years. Therefore, your constituent asks why the information slips were incorrect, why the T3 information slips were received later than the T5 information slips, and what penalties are applicable generally in respect of incorrect filings. Your constituent is also concerned that such incorrect filings may have jeopardized his credibility with the Canada Revenue Agency (CRA). In a broader context, you ask what protection is available to investors in respect of filing errors made by the trustees of the income trusts.
T5 information slips in respect of dividends, interest, and royalties paid to a person in a particular year are required to be filed on or before the last day of February in respect of the preceding calendar year.
A trustee of a trust is required to prepare and file a combined income tax and information return for the trust on a prescribed form, which is called the T3 Trust Income Tax and Information Return. This return must be filed within 90 days of the end of the trust's tax year. The tax year of an income trust that is a mutual fund trust will end on either December 15 or December 31. Before a trust's T3 can be prepared, the trustee must first determine the income of the trust and, in many instances, the trust itself may be the recipient of information slips (for example T5 slips for interest or dividends). In such cases, the trustee may not be in a position to determine the income of the trust before the end of February. As a result, the trustee has only one month in which to calculate the income of the trust, determine what portion of that income was payable to the investors in that tax year, and file the required T3.
Although we recognize that reducing the filing deadline from 90 days to 60 days would benefit the investors who receive T3 slips, such a change would also impose an onerous deadline on trustees of income trusts, potentially requiring the trustee to estimate what portion of the amount payable to the investors was made out of the income of the trust. Considering that a trustee currently has less time to file its annual T3 than a corporation (six months) or an individual (four months), there is no easy solution. The provision in the Income Tax Act that allows a mutual fund trust to elect to have a tax year of December 15 rather than December 31 was intended to alleviate, in part, the problem created by concurrent filing deadlines. I assure you that the Department of Finance Canada is aware that the concerns you and your constituent raised are an ongoing issue for many investors.
The CRA has the authority under the Act to penalize an issuer who does not submit the required information return on time. The minimum penalty is $100 and the maximum penalty is $2,500. Since the T3 is both an income tax return and an information return, the penalties for either failing to file an income tax return or filing an income tax return late can also be applied.
With respect to any interest or penalties imposed on a trust, or indirectly on its beneficiaries, in respect of late or incorrect filings by the trust, the terms of the trust dictate the extent to which a trustee is personally liable for paying such amounts. Generally, the terms of a trust indenture do not hold a trustee personally liable for the debts of a trust except in the most exceptional circumstances. Additionally, when considering the amount of any interest or penalties imposed on the beneficiaries in respect of their personal returns, it would be very rare to see a trust indenture that imposes a personal liability on a trustee for debts incurred by the beneficiaries personally. However, I can assure you that the penalties that could potentially be applicable to an investor who fails to report income would not normally be imposed on an investor who reported the amounts shown on a particular T3 information slip when that T3 information slip was subsequently shown to be in error and the investor promptly requested the appropriate amendment to the tax return.
I note your comment about the inaccuracy of the information originally provided on your constituent's T3 information slips. In this respect, your constituent would need to contact the trustee of the income trust for an explanation of why the information originally reported on the T3 information slip was incorrect. It could be that the trustee had not received all of the information slips in respect of the income earned by the trust; for example, an income trust that receives income from another income trust will typically be required to estimate the amount of income it received from the other trust since the deadline for filing returns by both trusts will generally be on the same day. However, I can assure you that your constituent will not be treated differently by the CRA as a result of his having filed amended returns for 2004 and 2005. As stated in the CRA's publication Your Rights, a copy of which is available on the CRA Web site at www.cra.gc.ca/E/pub/xi/rc4213/README.html, all taxpayers have the right to expect the CRA to apply the Act fairly and impartially.
With respect to the information that has to be filed in respect of a limited partnership, it is the responsibility of each member of a particular partnership to make sure that a T5013 Partnership Information Return is filed for each of the partnership's fiscal periods. Although any partner can file on behalf of the other partners, in the case of a limited partnership, the T5013 is normally filed by the general partner. Once one partner files the T5013 return, all partners are considered to have filed the return.
The due date for filing a T5013, including distributing the information slips to the investors, depends on the partnership's members. For example, the T5013 must be filed no later than the earlier of March 31 after the calendar year in which the fiscal period of the partnership ended and the day that is five months after the end of the partnership's fiscal period when the members of the partnership are a combination of individuals, trusts, and corporations.
As requested by a member of your staff in your constituency office, I am enclosing a list of the relevant provisions of the Act as well as the Canada Revenue Agency publications that relate to the penalties and filing obligations applicable to income trusts and limited partnerships.
In the broader context of investor protection, the various provincial security regulators are the primary bodies responsible for ensuring that investors are adequately protected in making their investments. For example, the relevant provincial legislation and policies regarding income trusts, such as National Policy Instrument 41-201, as well as various other publications that may be of interest to your constituent, can be found on the Ontario Securities Commission's Web site at www.osc.gov.on.ca.
I trust that this will assist you in responding to your constituent.
Sincerely,
The Honourable Carol Skelton, P.C., M.P.
Attachment
A. Humenuk
2007-022587
957-8585
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