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: In the event that Bill C-33 is not passed before the filing dates for the 2007 taxation year, is it still the Canada Revenue Agency's ("CRA") view that taxpayers should file in accordance with the proposed legislation? In particular, can immigrant taxpayers who contributed property to a trust that is not resident in Canada in circumstances where the conditions in subsection 75(2) are met continue to rely on proposed paragraph 75(3)(c.2) of the ITA to exclude the income earned by that trust from their income? What is required of taxpayers who have previously filed tax returns in accordance with draft legislation when the effective date was for taxation years after 2002?
Position: It is the CRA's longstanding practice to ask taxpayers to file on the basis of proposed legislation. Consequently, even if the legislation does not receive Royal Assent by the filing due dates for 2007, taxpayers will be expected to file their 2007 returns on the basis of that proposed legislation. For trusts created in 2001 or subsequent taxation years, the trust may elect to have the proposed rules apply from the date the trust was created. If the trust has filed based the proposed legislation and intends to elect, no further action is required. Additionally, as there is no change to the proposed implementation date for proposed paragraph 75(3)(c.2) of the ITA no action is required at this time for taxpayers who have filed based on this proposal. If adjustment requests are required, taxpayers should write to the CRA, as soon as possible. Adjustment requests for NRTs should be sent to the International Tax Services Office and adjustment requests for FIEs should be sent to the local tax office where the taxpayer lives.
Reasons: Wording of provisions and CRA practice.
2007 STEP Round Table
Q. 11 Draft NRT/FIE Legislation
In the event that Bill C-33 is not passed before the filing dates for the 2007 taxation year, is it still the Canada Revenue Agency's ("CRA") view that taxpayers should file in accordance with the proposed legislation? In particular, can immigrant taxpayers who contributed property to a trust that is not resident in Canada in circumstances where the conditions in subsection 75(2) are met continue to rely on proposed paragraph 75(3)(c.2) of the ITA to exclude the income earned by that trust from their income? What is required of taxpayers who have previously filed tax returns in accordance with draft legislation when the effective date was for taxation years after 2002?
Response
Proposed legislation regarding Non-Resident Trusts ("NRTs") and Foreign Investment Entities ("FIEs") was recently introduced in Parliament and is included in Bill C-33 which received second reading in the House of Commons on May 14, 2007. The provisions are generally applicable for tax years that begin after 2006. It is the CRA's longstanding practice to ask taxpayers to file on the basis of proposed legislation. Consequently, even if the legislation does not receive Royal Assent by the filing due dates for 2007, taxpayers will be expected to file their 2007 returns on the basis of that proposed legislation.
One exception to the general application dates of the NRT and FIE legislation in Bill C-33 relates to proposed paragraph 75(3)(c.2) of the ITA. Under proposed paragraph 75(3)(c.2), subsection 75(2) of the ITA will not apply to a NRT until the contributor has been resident in Canada for more than 60 months. It is proposed that new paragraph 75(3)(c.2) of the ITA will be effective for trust tax years that begin after 2000. Given our position with respect to filing on the basis of proposed legislation, taxpayers to whom income is excluded from tax based on proposed paragraph 75(3)(c.2) of the ITA may continue to file their tax returns on the basis of the proposed legislation.
Taxpayers who filed in earlier years, when the effective date of the proposed NRT and FIE legislation was expected to be applicable for tax years beginning after 2002, will need to determine the impact of the change to the coming into force provisions. For trusts created in 2001 or subsequent taxation years, the trust may elect to have the proposed rules apply from the date the trust was created. If the trust has filed based the proposed legislation and intends to elect, no further action is required. Additionally, as there is no change to the proposed implementation date for proposed paragraph 75(3)(c.2) of the ITA no action is required at this time for taxpayers who have filed based on this proposal. If adjustment requests are required, taxpayers should write to the CRA as soon as possible. Adjustment requests for NRTs should be sent to the International Tax Services Office and adjustment requests for FIEs should be sent to the local tax office where the taxpayer lives.
Procedures will be posted on the CRA's website.
June 8, 2007
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