8 June 2007 Roundtable, 2007-0233731C6 - 2007 STEP Conf-Q.5-Concurrent filing dates

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: It is becoming increasingly common for trusts to have investments in other trusts. These investments may be income trusts, or mutual funds that are structured as trusts. In such circumstances, the filing due date for the trust is coincident with the date on which T3 information slips are to be furnished. Thus, as a practical matter, it is difficult to complete a tax return for the trust by the due date. This difficulty was acknowledged in the March 19, 2007 federal budget. Until this matter is resolved in some way, possibly by legislative amendment, what would you advise practitioners to do in these circumstances? It is noted that while it is possible to file an amended T-3 return, it is not possible to retroactively make income payable to a beneficiary.

Position: As outlined in the T3 Guide and consistent with the other guides for filing income tax returns, where the preparer of a trust return does not have all of the information slips needed to complete the return when it is due, the income should be estimated. If the estimate differs from the actual amounts when the actual information slips are received, the information slips, including any revised information slips that are being issued by the trust, accompanied by a letter requesting an adjustment to the trust's income, should be sent to the Ottawa Technology Centre accompanied by a letter requesting an adjustment to the trust's tax return.

With respect to the inability to retroactively make income payable, it is noted that a trust is only entitled to a deduction under subsection 104(6) for amounts of income that became paid or payable to the beneficiaries in the year in which the income was earned, and is not entitled to a deduction for amounts that only became payable after the end of the year. Thus, the timing of the receipt of slips will not impact on how much income the trustees made payable to the beneficiaries before the end of the taxation year. In determining whether an amount was payable to the beneficiaries before the end of the taxation year in which the income was earned, we would look to the terms of the trust and any resolutions of the trustees in respect of the exercise of any discretion they might have in respect of the distribution of the trust's income.

Reasons: same response as given at 2005 STEP conference

2007 STEP Round Table
Q. 5 Compliance Problems in Trust Reporting

It is becoming increasingly common for trusts to have investments in other trusts. These investments may be income trusts, or mutual funds that are structured as trusts. In such circumstances, the filing due date for the trust is coincident with the date on which T3 information slips are to be furnished. Thus, as a practical matter, it is difficult to complete a tax return for the trust by the due date. This difficulty was acknowledged in the March 19, 2007 federal budget. Until this matter is resolved in some way, possibly by legislative amendment, what would you advise practitioners to do in these circumstances? It is noted that while it is possible to file an amended T-3 return, it is not possible to retroactively make income payable to a beneficiary.

Response

The CRA has long recognized this difficulty. The difficulty arises because the T3 is both an income tax return and an information return with the result that a trust issuing a T3 slip and a trust receiving a T3 slip have the same filing deadline. Section 132.11, the provision in the Income Tax Act that allows a mutual fund trust to elect to have a taxation year of December 15th rather than December 31st, was intended to alleviate, in part, the problem created by concurrent filing deadlines. As noted in the question, the 2007 federal budget stated that the government is working with the investment funds industry to develop a process that will balance the trustees' need to have sufficient time to compute the trust's income for the year and the beneficiaries' need for timely information concerning the income that was made payable to them in the year. The government expects to release the new draft regulations in time for the 2007 taxation year filing deadlines.

Obviously, nothing prevents a trust, including a mutual fund trust, from filing its T3 Trust Income Tax and Information Return early to ensure that all of its beneficiaries will have the T3 information slips in time to file their respective income tax returns. Even so, a trustee of a trust that is itself the beneficiary of another trust is often faced with the difficulty of completing the trust's tax return without having received the T3 information slips from the trusts in which it holds an interest. As outlined in the T3 Trust Guide and consistent with the other guides for filing income tax returns, where the preparer of a trust return does not have all of the information slips needed to complete the return when it is due, the income should be estimated. If the estimate differs from the actual amounts shown on the information slips, the information slips, including any revised information slips that are being issued by the trust, should be sent to the Ottawa Technology Centre accompanied by a letter requesting an adjustment to the trust's tax return.

The comment made with respect to the inability to retroactively make income payable is a good point. A trust is only entitled to a deduction under subsection 104(6) of the ITA for amounts of income that became paid or payable to the beneficiaries in the year in which the income was earned, and is not entitled to a deduction for amounts that only became payable after the end of the year. For a detailed discussion on the meaning of "paid or payable" for the purposes of subsections 104(6) and 104(13) of the ITA, we refer you to CRA document 2005-015908. Generally, an amount will be considered to have become payable in a taxation year to a beneficiary for purposes of these provisions if, in the circumstances, the amount was paid in the taxation year to the beneficiary or the beneficiary was entitled to enforce payment of the amount in the taxation year. In determining whether an amount was payable to the beneficiaries before the end of the taxation year in which the income was earned, we would look to the terms of the trust and any resolutions of the trustees in respect of the exercise of any discretion they might have in respect of the distribution of the trust's income.