Income Tax Severed Letters - 2026-07-15

Principal Issues: 1. Where the Will of an individual creates a testamentary spousal trust and the terms of the Will provide that on the death of the spouse any remaining property is to be held in a second testamentary trust for the benefit of the remainder beneficiary, what are the filing requirements of the second trust while the spouse is alive? 2. On what date would the 21-year deemed disposition rule in subsection 104(4) apply to the second testamentary trust? 3. How would the response in 2. change if instead of a spousal trust, the first generation testamentary trust is for the benefit of a non-spouse lifetime beneficiary?

Position: 1. The second testamentary trust will be required to file a T3 Return, including Schedule 15, for each taxation year ending after its creation date in which it does not meet any of the exemptions listed in subsection 150(1.2). 2 and 3. The deemed disposition date will be determined in accordance with the rules in subsection 104(5.8).

Reasons: 1. 2. and 3. Words of the Act.

Principal Issues: 1. At what time a corporate beneficiary (Benco) would include a capital dividend distributed by the trust? 2. At what time a corporate beneficiary (Benco) would include the non-taxable portion of capital gains distributed by the trust in its capital dividend account? 3. In what taxation year a corporate beneficiary (Benco) would report the taxable dividend income or taxable capital gains distributed by the trust?

Position: Provided that the trust made the relevant designation under the Act: 1. The amount thus determined under paragraph (g) of the definition of capital dividend account will be added to Benco's capital dividend account at the end of the trust's Particular Taxation Year. 2. In determining its capital dividend account, Benco will include the lesser of the amounts determined under clauses (A) and (B) so referred to in subparagraph (a)(i.1) of the definition of capital dividend account at the end of the trust's Particular Taxation Year. 3. Taxable dividend: Benco will include the amount thus designated in its taxation year end in which the trust's Particular Taxation Year ends. / Capital gains: Benco will include the amount thus designated in its taxation year end in which the trust's Particular Taxation Year ends.

Reasons: Wording of the Act and previous CRA's positions.

Principal Issues: (i) Does the CRA agree that the deadline for remitting Part XIII tax on amounts deemed paid on March 31 by a trust to a non-resident beneficiary under subparagraph 214(3)(f) would be April 15, in accordance with the administrative guidance in Guide T4061?
(ii) If yes, is there a way to ensure that the CRA's will not assess penalties where the remittance is received by the Minister on or before the April 15 remittance deadline?

Position: (i) The administrative deadline set out in Guide T4061 for remitting the Part XIII tax should be applicable in the scenario described.
(ii) No penalties should be applied.

Reasons: (i) Consistency with past positions, including 2003-0009211E5.
(ii) No penalties should be applied when remittance is made in accordance with administrative guidance.

Principal Issues: Acquisition of control and change of trustee(s).

Position: See response below.

Reasons: Previous positions, in particular 2022-0928191C6.

Principal Issues: 1. In a hypothetical situation where a trust is settled with beneficiaries that include Canadian-resident corporate beneficiaries owned by an individual beneficiary who may become a non-resident in the future, is an RC312 required to be filed within 90 days of the trust's settlement to report a notifiable transaction under NT-2023-02? 2, If the RC312 was filed disclosing a series of transactions that may occur, confirm whether an amended RC312 is required to be filed if the transactions occur as described in the original filing.

Position: 1. No. 2. No.

Reasons: 1. A requirement to file the RC312 under subsection 237.4(4) would only arise if and when a person enters into or becomes contractually obligated to enter into a transaction or series that is the same as, or substantially similar to, the designated transaction or designated series, such that the deadline in subsection 237.4(9) is triggered. 2. On the facts provided and for reasons explained in Question 1, the reporting requirement in section 237.4 does not apply and the RC312 cannot be filed pre-emptively in this case. However, if the transactions as outlined ultimately occur in a future year, then the RC312 will need to be filed accordingly.

Principal Issues: 1. Did the CRA retain Schedule 15 when filed with a bare trust's T3 Return for the trust's 2023 taxation year? 2. Will the CRA assess a penalty in circumstances where a Schedule 15 was not required for a prior year then filed for a subsequent year but annotated as no change?

Position: 1. A Schedule 15 was retained when filed with a bare trust's T3 Return for the trust's 2023 taxation year unless the Notice of Assessment stated otherwise. 2. The CRA may consider providing relief related to the Schedule 15 penalty based on the trust's specific circumstances.

Reasons: See comments provided below.

Principal Issues: Whether a trust that is deemed resident pursuant to subsection 94(3) is considered to be resident in Canada for purposes of subparagraph (g)(iv) of the definition of trust in subsection 108(1).

Position: Yes.

Reasons: The trust is deemed resident for purposes of applying section 2 and the trust will compute its income and taxable income under subsection 2(1). Subsections 104(4) and 108(1) are relevant to the determination of a trust's income.