2 May 2024 External T.I. 2024-1013141E5 - Indigenous owned land trust

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: 1. Is a trust that holds shares of a corporation that holds an Indigenous family's farmland taxable? 2. Do the beneficial ownership trust reporting rules apply to the trust?

Position: 1. Yes. 2. Yes.

Reasons: 1. Exemptions in paragraphs 81(1)(a) and 81(1)(g.3) would not apply. 2. The trust is an express trust and is not a trust listed in paragraphs 150(1.2)(a) to (o).

XXXXXXXXXX								2024-101314
									Phil Kohnen

May 2, 2024

Dear XXXXXXXXXX,

Re: Trust taxation and reporting

We are replying to your correspondence of March 10, 2024 to the Honourable Marie-Claude Bibeau, Minister of National Revenue. In your submission, you inquired as to the taxation of and reporting requirements that would apply to a particular family trust. You provided the following information to describe the trust:

An Indigenous Métis family’s farmland is held by a corporation, the shares of which are held by the family trust. Each parcel of land remains "land reserved for Indigenous people" pursuant to Royal Proclamation. Each parcel of land continues to have non-ceded Métis underlying absolute land title. The McKee Treaty 1790 is believed to be null and void. Thus the Crown’s claim of partial ownership is disputed. The land title is at least 50% non-ceded, according to existing law.

Your submission also raised the following questions:

1. Are Indigenous owned land trusts exempt from income tax reporting to CRA?

2. If no, is there a special form that Indigenous trusts must use?

3. Are Indigenous owned farm corporations exempt from tax reporting to CRA?

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

As a general rule, income earned from property held by or business activities carried on by individuals, trusts, and corporations that are resident in Canada will be subject to income tax except where a specific exemption is provided under the Act.

Paragraph 81(1)(a) of the Act provides that an amount that is declared to be exempt from income by any other Act of Parliament is not to be included in the income of a taxpayer. Section 87 of the Indian Act (the “IA”) exempts from tax the personal property situated on a reserve of an individual who is registered or entitled to be registered under the IA.

The 2016 Supreme Court of Canada decision in Daniels v. Canada, 2016 SCC 12, which you referenced in your submission, declared that Métis and Non-Status First Nations individuals are “Indians” for the purpose of federal Parliament’s law-making jurisdiction under subsection 91(24) of the Constitution Act, 1867. However, this decision did not change who is eligible for the tax exemption under section 87 of the IA.

Furthermore, the tax exemption under section 87 of the IA does not apply to corporations or trusts, even if they are owned or controlled by an individual who is registered or entitled to be registered under the IA. A corporation or trust is treated as a separate taxpayer. As such, since neither a corporation nor a trust is an individual who is registered or entitled to be registered under the IA they are not eligible for the exemption.

Paragraph 81(1)(g.3) of the Act provides for another exemption from tax for trusts that are established under certain listed agreements, including the May 8, 2006 Indian Residential Schools Settlement Agreement and the September 15, 2021 agreement relating to long-term drinking water quality for impacted First Nations, where only contributions provided for under those agreements have been made to the trusts.

Given that neither paragraph 81(1)(a) nor 81(1)(g.3) of the Act would apply to the family trust described in your submission, we would expect that the trust would be subject to tax on its taxable income.

Filing and reporting requirements

Pursuant to paragraph 150(1)(c) of the Act a trust must generally file a return of income for a particular taxation year within 90 days of the end of the year. Subsection 150(1.1) of the Act provides for an exception to this requirement in certain circumstances, however, pursuant to new trust reporting requirements that apply to taxation years ending after December 30, 2023, the exception will not apply to an express trust unless it is a trust that is described in paragraphs 150(1.2)(a) to (o) of the Act. As a result, many trusts that did not previously have to file are now required to file an annual return of income for the first time. Pursuant to the rules in the Act, the vast majority of trusts have a taxation year that coincides with the calendar year, such that their taxation year ended on December 31, 2023 and the new reporting requirements would apply for the 2023 taxation year unless an exception applies.

An express trust is one in which the person creating it has expressed his or her intention to have property held by one or more persons for the benefit of another or others. We would assume that your reference to the trust in your submission as a family trust would indicate that it is an express trust that was in existence for at least three months at the end of 2023. We would not expect that any of the exceptions in paragraphs 150(1.2)(a) to (o) would apply to the trust described in your submission, and as a result, the trust would be subject to the filing requirement in paragraph 150(1)(c) noted above.

The prescribed form for filing the return of income for the family trust is the T3RET – Trust Income Tax and Information Return and instructions on how to file it, along with any required schedules, are provided in publication T4013 – the T3 Trust Guide.

The new reporting rules applicable to trusts also require the filing of Schedule 15 – Beneficial Ownership Information of a Trust along with the filing of the T3RET for express trusts other than trusts described in paragraphs 150(1.2)(a) to (o) of the Act. Additional information for all reportable entities in respect of the trust such as trustees, settlors, beneficiaries, and controlling persons for the trust, including those who may have been a reportable entity for only part of the year must be provided on the Schedule 15. The T3 Trust Guide contains information about how to complete the Schedule 15.

The 2023 version of the T3 Trust Guide can be found on the Canada Revenue Agency’s website, as can the T3RET and the T3 Schedule 15. You may also wish to refer to the webpage “New reporting requirements for trusts: T3 returns filed for tax years ending after December 30, 2023” for additional information.

Responses to the specific questions raised in your submission

1. Indigenous owned land trusts as you have described are not specifically exempted from income tax reporting under the Act.

2. There are no forms that are specific to Indigenous family trusts; they would typically file using the T3RET.

3. Indigenous owned farm corporations are also not specifically exempted from income tax reporting under the Act.

We trust our comments will be of assistance.

Yours truly,

Steve Fron, CPA, TEP
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch