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.
April 8, 1993
| T2/T3 Programs Division |
Manufacturing Industries, |
| |
Partnerships & Trusts Division |
| J. Hartwick |
F.B. Fontaine 957-4364 |
| Litigation & T3 Filing Requirements |
This is in reply to your memorandum dated December 23, 1992 concerning the rights to income under contested Wills and the requirements to file T3 returns and waivers until the dispute is resolved.
You wish to know:
(i) whether, until the dispute has been settled, the annual income earned by the trust should be reported or a "nil" return filed to explain the situation, and
(ii) whether a T3 return and a waiver are required to be filed each year until the dispute is settled.
It is your view that if the litigants and the trustee submitted waivers each year, the return would not be required.
In a reply to a question asked at the 1981 Canadian Tax Foundation Conference concerning a beneficiary's share of income of a trust in dispute, we stated that in a matter that is before the courts, an amount cannot be considered to be "payable" for the purposes of subsections 104(24) and (13) of the Income Tax Act (the "Act"). The basis for this position, according to the reply, is that the executors could not normally make a distribution to the beneficiaries during the course of litigation without committing a breach of trust.
Technically, any income earned by the trust for a taxation year in which the trust income is not payable to the beneficiaries would be taxable in the hands of the trust for that year. In this case, any after-tax income to which the beneficiaries would legally be entitled would ultimately be received by them as capital with no further tax consequences.
Alternatively, the income should be reported by the trust as described above but have valid waivers filed by both the trust and the beneficiaries for each taxation year until the dispute is settled to permit reassessments to be made following settlement of the dispute. In either case, a T3 return will be required for each year since the trust will be taxed on any income for that year.
It is our view that the administrative position described at paragraph 10 of Interpretation Bulletin IT-129R refers only to funds deposited with lawyers for safekeeping pending settlement of disputes.
We hope our comments will be of assistance to you, but if any further elaboration is required, do not hesitate to contact us.
for Director Manufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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