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