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: When does the taxation year of a graduated rate estate end when it ceases to exist?
Position: The final taxation year of a graduated rate estate will end when the period of accounts end for that same taxation year.
Reasons: The law allows a graduated rate estate to have a taxation year-end other than a calendar year, including in the year of wind-up.
2022 STEP CRA Roundtable – June 15, 2022
QUESTION 10. Taxation Year-End of a Trust
When a trust winds up and ceases to exist, does the taxation year of the trust end at that time or does its taxation year continue until the time of its normal year-end? For an inter vivos trust the normal taxation year-end would be December 31 and for a graduated rate estate (GRE) (in its first 36 months) that year-end would be the end of the fiscal period adopted.
The Act (footnote 1) is specific in certain provisions in deeming a year-end to arise (e.g. for alter ego, spousal and joint spousal trusts, a testamentary trust that ceases to be a GRE, and when a trust becomes or ceases to be resident in Canada). The Act is silent on this point in the general case.
The T3 Guide states that when a GRE winds up, a taxation year-end occurs on the date of the final distribution of its assets.
Can CRA explain the rationale for this?
CRA Response
Subsection 249(1) of the Act defines a taxation year for purposes of the Act and applies except as otherwise provided. (footnote 2)
As was noted in our response to Question 3 of the 2018 STEP CRA Roundtable (footnote 3) , paragraph 249(1)(b) defines a taxation year of a GRE to be the period for which the accounts of the estate are made up for purposes of assessment under the Act. Paragraph 249(1)(b), when combined with subsection 249(5), causes the taxation year to cease when the period of accounts ends. In the year of wind up, the last period for which the accounts of the trust would have been made up would presumably end on the final distribution of the trust assets.
Paragraph 249(1)(c) defines, for purposes the Act, a taxation year of a trust, other than a GRE, to be a calendar year. In the year that such a trust is wound up and the final distribution of assets occurs, there is no provision that would cause the taxation year to be a period other than a calendar year, regardless of when the period of accounts cease.
Dawn Dannehl
2022-092936
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 The Act means the Income Tax Act R.S.C. 1985 (5th Supp.) c.1 as amended from time to time and consolidated to the date of this response and, unless otherwise expressly stated, every statutory reference herein is a reference to the relevant provision of the Act.
2 For example subsections 149(10), 249(4), 104(13.4), 128.1(1) and 128.1(4) all provide for a deemed year-end in respect of a trust. This is not an exhaustive list however.
3 Document 2018-0744081C6.
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