20 June 2023 STEP Roundtable Q. 17, 2023-0959621C6 - Foreign Reporting, Estate,

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: Does the answer in document 2007-0233741C6 still reflect CRA’s current position? If so, can CRA provide some general guidance as to when an estate would be administered such that property is now held in a testamentary trust which is not an estate?

Position: Yes. Generally speaking, an estate is considered fully administered when the assets of the estate have been distributed and, if applicable, a clearance certificate is requested pursuant to section 116 or 159 of the Act.

Reasons: See below.

2023 STEP CRA Roundtable – June 20, 2023
QUESTION 17. Foreign Reporting, Estate and T1142

Foreign reporting is required for a distribution from a foreign trust (Form T1142). But no reporting is required per section 233.6 (footnote 1) for a distribution from an estate that arose as a consequence of death of an individual.

At the 2007 CRA STEP Roundtable (Question 8), CRA stated that reporting would be required if the estate has been administered and the assets are now held in a testamentary trust.

Since providing that answer, the Tax Court of Canada considered this issue in Hess 2011 TCC 360. The Tax Court determined in that case that reporting was not required.

Does the 2007 answer still reflect CRA’s current position? If so, can CRA provide some general guidance as to when an estate would be administered such that property is now held in a testamentary trust which is not an estate?

CRA Response

The response to Question 8 provided at the 2007 CRA STEP Roundtable continues to reflect our position. Form T1142 does not have to be filed by a person who receives a distribution from a non-resident estate during the period of administration of that estate. However, once the estate has been administered, the Canadian beneficiary of any ongoing non-resident testamentary trust must file Form T1142 in any year where a distribution is received from the trust or where the Canadian beneficiary becomes indebted to the trust.

In Hess, a testamentary trust was created as a consequence of the death of a taxpayer’s great-uncle. The testamentary trust was resident in the United States. The taxpayer, as the beneficiary, did not file Form T1142 to disclose the distributions received from the non-resident trust for several tax years. The CRA levied penalties for the failure to do so for each of the tax years. The Tax Court allowed the taxpayer’s appeal of the penalties that were assessed. The Tax Court concluded that no evidence had been provided to allow it to determine if the estate had been administered. As such, there was no basis for the Tax Court to conclude that the testamentary trust was not an estate.

The determination of when an estate would be considered administered is a matter of estate law. However, generally speaking, an estate is considered fully administered when the assets of the estate have been distributed and, if applicable, a clearance certificate is requested pursuant to section 116 or 159.

Katie Robinson
2023-095962

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 Unless otherwise stated, all statutory references herein are to the Income Tax Act (Canada).