17 June 2025 STEP Roundtable Q. 4, 2025-1055891C6 - Preferred Beneficiary Election

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: Whether the preferred beneficiary election in subsection 104(14) would be available to a trust that is not a QDT and a beneficiary under the trust that is also a beneficiary under a QDT, provided the relevant conditions are met.

Position: Yes.

Reasons: The law.

2025 STEP CRA Roundtable – June 17, 2025

QUESTION 4 – Preferred Beneficiary Election

An individual (the “Individual”) is resident in Canada, eligible for the disability tax credit at all relevant times, and is a beneficiary of a Qualified Disability Trust (“QDT”), as defined in subsection 122(3) of the Income Tax Act (Canada) (the “Act”). (footnote 1) The Individual is also a beneficiary of another trust (the “Trust”), which does not qualify as a QDT.

Can the CRA confirm whether the preferred beneficiary election in subsection 104(14) would be available to the Individual and the Trust?

CRA Response

Subsection 104(14) generally provides that a trust and a preferred beneficiary under the trust may jointly elect, in prescribed manner, to have a portion of the trust’s accumulating income for the trust’s taxation year included in computing the income of the preferred beneficiary for the beneficiary’s taxation year in which the trust’s taxation year ended, provided it does not exceed the allocable amount for the preferred beneficiary for that taxation year.

Pursuant to the definition in subsection 108(1), a preferred beneficiary under a trust for a particular taxation year of the trust means a beneficiary under the trust at the end of the particular year who is resident in Canada at that time if:

(a) the beneficiary is

(i) an individual in respect of whom paragraphs 118.3(1)(a) to (b) apply for the individual’s taxation year that ends in the particular year (the “beneficiary’s year”), or

(ii) an individual

(A) who attained the age of 18 years before the end of the beneficiary’s year, was a dependant (within the meaning assigned by subsection 118(6)) of another individual for the beneficiary’s year and was dependent on the other individual because of mental or physical infirmity, and

(B) whose income (computed without reference to subsection 104(14)) for the beneficiary's year does not exceed the amount determined for F in subsection 118(1.1) for the year, and

(b) the beneficiary is

(i) the settlor of the trust,

(ii) the spouse or common-law partner or former spouse or common-law partner of the settlor of the trust, or

(iii) a child, grandchild or great grandchild of the settlor of the trust or the spouse or common-law partner of any such person.

Since the Individual is eligible for the disability tax credit for the beneficiary’s year, they would meet the criteria in subparagraph (a)(i) of the definition of preferred beneficiary in subsection 108(1). If the other relevant conditions in that definition are also satisfied (most notably those in paragraph (b), as outlined above), the Individual would meet the definition of preferred beneficiary in subsection 108(1). In this situation, the preferred beneficiary election under subsection 104(14) would be available to the Trust and the Individual, in respect of a particular year, provided that all of the relevant conditions in that subsection are also satisfied, and the Trust is not a trust described in any of paragraphs (a) to (h) of the definition of trust in subsection 108(1). The fact that the Individual is also a beneficiary of another trust which is a QDT, would not preclude the Trust and the Individual from making a preferred beneficiary election.

Aleksandra Bogdan
2025-105589

FOOTNOTES

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

1. Unless otherwise expressly stated, every statutory reference herein is a reference to the relevant provision of the Act.