29 April 1994 External T.I. 9411095 - REQUIREMENT OF CUSTODIANS TO FILE T3 RETURN

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Requirement of custodian to file T3 Return

Position TAKEN:

Yes, if conditions specified in 204(1) of Regs is satisified

Reasons FOR POSITION TAKEN:

Requirement of Regulations

XXXXXXXXXX 941109

Attention: XXXXXXXXXX

April 29, 1994

Dear Sirs:

Re: Subsection 204(1) of the Income Tax Regulations

This is in reply to your letter of August 30, 1993 to the Calgary District Office, as supplemented by your letter of November 16, 1993 to the Rulings Directorate. We apologize for the delay in responding to your letter.

Specifically, you have queried whether subsection 204(1) of the Income Tax Regulations (the "Regulations") would require a custodian to file a T3 Trust Return and Information Return and, if so, whether there is any administrative policy to relieve the custodian of the responsibility to file such a return. The custodian would be appointed under a court order to have custody of the property of a member of a professional organization or a professional corporation for the purposes of managing, winding-up or selling the professional practice of the member or the professional corporation.

Subsection 204(1) is in Part II of the Regulations which is entitled Information Returns. It states:

ESTATES AND TRUSTS

204. (1) Every person having the control of, or receiving the income, gains or profits in a fiduciary capacity, or in a capacity analogous to a fiduciary capacity, shall make a return in prescribed form in respect thereof.

The prescribed forms listed include the T3 Trust Income Tax Return and Information Return (the "T3 Return").

In your letter you state that while the custodian is not a trustee (i.e., that a trust is not created up on the appointment of the custodian), the custodian occupies a fiduciary position (or at least a position analogous to a fiduciary position) and has control of and receives income from the professional practice. However, in your view, subsection 204(1) of the Regulations only applies to trusts and estates as evidenced by the title of section 204 of the Regulations and the title of the T3 Return. Thus, you conclude that the custodian is not required to file a T3 Return. You note, however, that subsection 150(3) of the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10. 1993 (the "Act"), would require the custodian to file a return where the professional has not done so.

It must be noted that there is a distinction between an income tax return prescribed by section 150 of the Act and an information return prescribed by Part II of the Regulations.

With respect to the requirement to file an income tax return under section 150 of the Act, paragraph 150(1)(c) of the Act is only applicable to an estate or a trust. Consequently, if a trust is not created by virtue of the appointment of the custodian there would be no requirement for the custodian to file a return (which would be a T3 Return) under that paragraph. As you have noted, there may be a requirement for the custodian to file an income tax return under subsection 150(3) of the Act where the circumstances specified therein are present (and, if the custodian were the legal representative of the professional, the custodian would be subject to paragraph 150(1)(d) of the Act).

The requirement to file an information return pursuant to subsection 204(1) of the Regulations is applicable where the person is having the control of, or receiving the income, gains or profits in a fiduciary capacity, or in a capacity analogous to a fiduciary capacity. As noted above, the list of prescribed forms includes the T3 Return. The T3 Return thus does multiple duties as it is both an income tax return and an information return. Relative to subsection 204(1) of the Regulations, it operates like a T4A in identifying the income belonging to the other person for the year.

In our opinion, the wording in subsection 204(1) of the Regulations is not restricted to estates and trusts. The provision is drafted broadly to cover all persons acting in a fiduciary capacity or a capacity analogous thereto. It would require the custodian to file the T3 Return if the custodian is having the control of, or receiving the income, gains or profits in a fiduciary capacity, or in a capacity analogous to a fiduciary capacity. This could result in a situation where the custodian would file a T3 Return in respect of the professional practice and the professional would file a T1 return (T2 return in the case of a professional corporation) in respect of the professional practice and any other items of income.

As discussed with you in our telephone conversation of April 18, 1994, your query regarding administrative relief was forwarded to the T2 and T3 Programs Division for their consideration. They have recently advised us that there are no policies in place to exclude custodians from the requirement to file T3 Returns and that custodians are expected to file if they are acting in a fiduciary capacity. They further advise that they are willing to review the facts of any individual case referred to them and consider the merits of any policies at that time.

Should you have an individual case, you should contact:

Mr. W.A. Mizuik

Chief, T3 Programs
Place Vanier, Tower B
355 River Road
Ottawa, Ontario
K1A 0L8

We trust our comments are of assistance to you.

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch