2 June 2026 STEP Roundtable Q. 14, 2026-1098051C6 - Subparagraph (g)(iv) of definition of 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: 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.

2026 STEP CRA Roundtable - June 2, 2026

QUESTION 14. Subparagraph (g)(iv) of the definition of trust

Consider a situation in which a trust (“Trust”) was settled in the U.S. by an individual resident in Canada approximately 20 years ago. The fair market value of the trust property has increased such that there is a substantial accrued gain. Trust is not factually resident in Canada; however, Trust is considered a deemed resident trust pursuant to subsection 94(3) of the Act. (footnote 1)

Trust has two beneficiaries, who are each entitled to 50% of the income and capital of Trust. Beneficiary A is a U.S. resident for income tax purposes, whereas Beneficiary B is a resident of Canada for income tax purposes.

The deemed disposition at fair market value of the property of Trust on the 21 year anniversary of Trust, referred to in paragraph 104(4)(b), is approaching. This deemed disposition will not apply if all of the interests in Trust have vested indefeasibly pursuant to paragraph (g) of the definition of trust in subsection 108(1) and none of subparagraphs (g)(i) to (vi) apply.

For purposes of the question, assume that the interests in Trust are otherwise vested indefeasibly; however, we wish to confirm whether subparagraph (g)(iv) would apply. Subparagraph (g)(iv) applies if the total fair market value of the interests of the non-resident beneficiaries is more than 20% of the total fair market value of all of the interests in Trust. However, subparagraph (g)(iv) refers to “a trust that is at that time resident in Canada”. As Trust in this case is deemed to be resident in Canada, does subparagraph (g)(iv) apply?

CRA Response

Paragraph (g) of the definition of trust in subsection 108(1) provides for a potential exception to the 21-year deemed disposition rule in paragraph 104(4)(b) where all interests of the trust at that time have vested indefeasibly. (footnote 2) Ultimately, whether a trust would fall under paragraph (g) is a question of fact and law that requires reference to the applicable law, jurisprudence, the will or trust agreement and all other relevant documents and circumstances in respect of those interests. It is also a question of fact and law as to whether a trustee has the power within the terms of a trust to vest all interests indefeasibly.

For paragraph (g) to apply, none of subparagraphs (g)(i) through (vi) can apply. Subparagraph (g)(iv) refers to:

(iv) a trust that is at that time resident in Canada where the total fair market value at that time of all interests in the trust held at that time by beneficiaries under the trust who at that time are non-resident is more than 20% of the total fair market value at that time of all interests in the trust held at that time by beneficiaries under the trust,

Subparagraphs 94(3)(a)(i) and (ii) are relevant in determining whether the phrase “resident in Canada” includes a deemed resident trust. Subparagraphs 94(3)(a)(i) and (ii) indicate that a deemed resident trust is deemed to be resident in Canada throughout the particular taxation year for the purposes of applying section 2 and in computing the trust’s income for the year. The Department of Finance Explanatory Notes to subsection 94(3) indicate that the result of the application of subparagraphs 94(3)(a)(i) and (ii) is that the trust is subject to tax under Part I “on its worldwide income for the year (including, for example, its income determined as a result of deemed dispositions under subsections 104(4) to (5.2) or 128.1(4) and,…) that is not distributed to beneficiaries of the trust or attributed to resident contributors of the trust.” (footnote 3)

Subsection 108(1) provides definitions for subdivision k of Division B – Computation of Income in Part I. As the definition of trust in subsection 108(1) impacts the application of subsection 104(4), among others, it is relevant for computing Trust’s income for the year. Accordingly, the application of subparagraph (g)(iv) of the definition of trust to a deemed resident trust is supported by subparagraphs 94(3)(a)(i) and (ii).

Therefore, the phrase “a trust that is at that time resident in Canada” in subparagraph (g)(iv) applies to trusts that are factually resident and those which are deemed to be resident in Canada by virtue of subsection 94(3). Since Beneficiary A’s interest in the trust has a fair market value greater than 20% of the fair market value of all the interests in the trust, subparagraph (g)(iv) applies to Trust. Consequently, the exception provided by paragraph (g) cannot apply, and the deemed disposition pursuant to paragraph 104(4)(b) will apply to Trust.

Steve Fron
2026-109805

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 c.1 (5th Supp.) as amended from time to time and consolidated to the date of this document and, unless otherwise expressly stated, every statutory reference herein is a reference to the relevant provision of the Act.

2. For additional comments with respect to vesting indefeasibly, see 2021 STEP Question 6 (document 2021-0883021C6).

3. The Department of Finance Explanatory Notes to Bill C-48.