News of Note
Bendel – High Court of Australia finds that there is no provision of credit by a beneficiary who does not demand payment of an amount the trust has set aside for it
Email this ContentThe corporate trustee (“Gleewin”) of a discretionary trust resolved to set aside, for the benefit of two beneficiaries (Mr. Bendel and a family company (“Gleewin Investments”)), amounts out of its income to be held on separate trusts. Unlike Mr. Bendel, Gleewin Investments did not call for payment of the amount set aside for it.
The Commissioner assessed on the basis that, by not so doing, Gleewin Investments had made a “loan” to the trust that, thus, was deemed to be a dividend. “Loan” was defined to include:
- “a provision of credit or any other form of financial accommodation” (s. 109D(3)(b) of the 1936 Act); and
- “a transaction (whatever its terms or form) which in substance effects a loan of money” (s. 109D(3)(d)).
The majority first noted that:
Plainly, Gleewin Investments' forbearance here did not … even meet the substance of such a concept [of loan], as no promise of repayment was ever given.
The majority then stated:
[T]here is no "provision ... of financial accommodation" for the purposes of s 109D(3)(b) when a private company does nothing. The provision of financial accommodation requires some initial or anterior transfer of value or, put in different terms, the supply or grant of some sort of pecuniary assistance, involving some bilateral activity.
In further finding that there was no loan within the meaning of s. 109D(3)(d), the majority stated (at para. 74)
Simply doing nothing, or acquiescing to the retention of funds, is not a transaction which in substance effects a loan. To find otherwise would be to ignore the word "transaction", which by its ordinary meaning refers to some interchange or interaction between entities. … Moreover, if the Commissioner were correct, it would mean that a private company beneficiary in the position of being able to invoke the rule in Saunders v Vautier would be taken to have made a loan to a trustee for the purposes of s 109D(3) for the period during which the beneficiary could have called for the trust to be terminated, but did not. That is a highly improbable outcome.
In her dissenting reasons, Jagot J stated that, at common law, “if … a trustee admits to a beneficiary that the trustee has appropriated a sum as payable to the beneficiary, the character of the relationship is changed so that the trustee is liable in law to the beneficiary for the payment of that sum, which obligation the beneficiary could vindicate by an action for money had and received against the trustee. …"
She further stated:
[I]rrespective of the fact that Gleewin determined to "set aside" portions of Trust income rather than to "pay" such portions, Gleewin was immediately bound by the resolutions either to pay a beneficiary its entitlement (as and when calculated) or to credit the amounts payable in its books of account whether or not a beneficiary required it to do so. … [I]f Gleewin took the latter option in respect of a beneficiary's entitlement … the beneficiary could either accept that Gleewin could continue to hold those amounts or require Gleewin to pay those amounts to it.
This decision may be relevant to the question whether s. 15(2) can apply where a corporate beneficiary chooses not to require payment of an amount that a trust (with a connected individual beneficiary) has set aside for it, and of whether such amount would be considered to be payable for s. 104(24) purposes.
Neal Armstrong. Summary of Commissioner of Taxation v Bendel [2026] HCA 18 under s. 15(2).
Income Tax Severed Letters 17 June 2026
This morning's release of ten severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that a refreeze transaction (as described in an exception to NT 2023-02) generally would not engage GAAR
The designations by the Minister of notifiable transactions under s. 237.4 in NT 2023-02 include transactions and series of transactions that seek to avoid or defer the 21-year deemed realization rule in s. 104(4) or that seek to avoid the rules in ss. 107(5) and (2.1) on the distribution of trust property to a non-resident beneficiary, even though the property continues to be held directly or indirectly by a trust or by a non-resident beneficiary.
However, para. 81 of the CRA guidance provides an exception, stating:
“Generally, transactions which limit, in whole or in part, the future growth in the value of shares of Opco (common shares) by having the owner - Old Trust- exchange the common shares for new shares that have a fixed value (preferred shares) that is equal to the fair market value (FMV) of the common shares and where a New Trust subscribes to the growth in the value of shares of Opco (“a freeze”) or where the Old Trust sells the common shares at FMV to the New Trust would not be considered substantially similar to NT 2023-02 insofar as no rights and restrictions are expected to avoid or defer the 21 -year deemed realization rule or to avoid the rules in subsections 107(5) and (2.1) through a significant reduction in FMV.”
CRA indicated that it would generally not seek to apply the GAAR to these para. 81 transactions because they would not, in and by themselves, be considered to result in a misuse or abuse of s. 104(4), 104(5), 107(2.1) or 107(5).
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.9 under s. 245(4).
CRA indicates that there is generally an acquisition of control of any trust-controlled corporation where an unrelated person becomes a replacement trustee
Regarding where the settlor of an alter ego or joint partner trust changes, e.g., upon the incapacity or death of the settlor, CRA indicated that it generally was of the view that the trustees of a trust who hold a power to encroach on capital, thereby hold discretionary authority with respect to the capital of the trust as described in the condition in s. 256(7)(i)(ii), so that the exception from an acquisition of control in s. 256(7)(i) would not apply to deem there to be no acquisition of control of a corporation held by the trust in such a situation.
Where s. 256(7)(i) does not apply, under CRA's longstanding position (see 2022-0928191C6) it would generally take the position that there would be an acquisition of control if an unrelated person became a trustee.
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.8 under s. 256(7)(i)(ii).
CRA notes that where the designated beneficiary of an RRSP is the annuitant’s ex-spouse, the estate of the deceased rather than the ex-spouse will bear the death tax
CRA confirmed that, generally, where the designated beneficiary of an RRSP was the former spouse of the annuitant, that beneficiary would received the RRSP proceeds on a tax-free basis to the extent of the FMV on death, so that the estate of the deceased (and, thus, ultimately its beneficiaries), would instead bear the full tax liability associated with the RRSP. In particular, the amount that was deemed to have been received as income by the deceased annuitant under s. 146(8.8) equal to the RRSP FMV on death would be excluded from the former spouse’s income and, thus, would be received tax-free.
Neal Armstrong. Summaries of 2 June 2026 STEP Roundtable, Q.7 under s. 146(8.8) and s. 160.2(1).
We have translated 5 more CRA interpretations
We have translated a further 5 CRA interpretations released in April of 1999. Their descriptors and links appear below.
These are additions to our set of 3,590 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 27 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Ontario Tire Stewardship – Tax Court of Canada finds that s. 296(2) required a CRA assessment to take into account unclaimed ITCs for prior stale-dated months
In its December 2013 return, OTS claimed over $16 million in ITCs for the preceding four years, which the Minister denied on the basis that OTS was not engaged in commercial activity. Consequent on the determination in Stewardship Ontario that OTS was engaged in commercial activity, in January 2019, the Minister reassessed OTS to allow the originally claimed ITCs but disallowed an additional claim for over $1 million in ITCs earned in 2012 (the “unclaimed ITCs”) that OTS had realized in August 2018 it had failed to claim in its December 2013 return.
OTS argued that, notwithstanding the four-year limitation in s. 225(4)(b) on carrying forward ITCs, the Minister was required to allow the unclaimed ITCs pursuant to s. 296(2). The Crown, however, contended that s. 296(2) only allowed ITCs that arose in the month of the return in question (December 2013) since s. 296(2)(a) did not include the phrase “or a preceding reporting period.”
In rejecting the Crown’s submission, Visser J. noted that the definition of “net tax” in s. 225(1) (as also used s. s. 296(1)) explicitly provides that net tax for a particular reporting period includes ITCs from preceding reporting periods, and then stated:
Where one provision operates by reference to an already defined term or formula in an earlier section, it is neither necessary nor reasonably expected for Parliament to repeat every detail. Parliament is presumed to avoid superfluous repetition. …
[T]o restrict subsection 296(2) as requested by the Respondent would increase the cascading of GST/HST and undermine the legislative scheme, which promotes registrants’ ability to carry forward and claim ITCs.
Regarding the Crown’s argument that s. 296(4) did not permit a refund for unclaimed ITCs from an earlier reporting period, Visser J. indicated that matters dealing with the collection and reimbursement of tax under the ETA are generally within the jurisdiction of the Federal Court and were outside his jurisdiction, and noted a similar observation in Pawlak.
Neal Armstrong. Summary of Ontario Tire Stewardship v. The King, 2026 TCC 77 under ETA s. 296(2).
CRA confirms the application of its 15-day remittance policy in Guide T4061 to a deemed payment under s. 214(3)(f)(i)
Pursuant to s. 214(3)(f)(i), where an amount has been made payable, but has not been paid or credited, by a trust to a non-resident beneficiary before the end of the trust’s taxation year, the amount is deemed to have been paid by the trust on the day that is 90 days after the end of that year.
CRA confirmed that, pursuant to the 15-day policy enunciated in Guide T4061, the tax must be remitted to the Receiver General by the 15th day of the month following the month in which the amount was deemed to be paid to the non-resident, i.e., by April 15 if the trust had a calendar year-end. This would comply with s. 215(1).
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.6 under s. 214(3)(f).
CRA confirms that a U.S. revocable living trust is not a bare trust for s. 116 purposes
A non-resident who is a US citizen contributes Canadian real property to a U.S. grantor trust under which that individual is the sole capital and income beneficiary until the trust property is distributed to certain family members after the individual's death. This transaction is disregarded for US purposes so that there is no disposition for such purposes.
CRA indicated that this trust, being a U.S. revocable living trust, would not be considered by it to be a bare trust, given the successive beneficial interests.
Accordingly, on its contribution, there would be a deemed disposition of the property pursuant to s. 69(1)(b) at its fair market value. Furthermore, the non-resident would be required to follow the s. 116 requirements, and the proceeds of disposition would, for such purposes, be deemed under s. 116(5.1) to be equal to the fair market value of the contributed property.
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.5 under s. 104(1).
CRA confirms post-Vefghi that capital dividends, or trust capital gains distributions, received by a corporate trust beneficiary, do not generate CDA additions until the trust year end
Regarding the situation where a private corporation (Benco) was the beneficiary of a trust holding shares of a private corporation (Opco), CRA confirmed that Vefghi did not change its positions reflecting the following propositions:
- Regarding capital dividends paid by Opco and distributed to Benco by the trust, their amount (to the extent designated under s. 104(20)) would be added to Benco's CDA at the end of the trust's particular taxation year, given that the condition for designation under s. 104(20) could not be satisfied before that time.
- Regarding recognition of the non-taxable portion of a capital gain realized by the trust and then distributed by it to Benco, the lesser of the amounts determined under clauses (A) and (B) in subparagraph (a)(i.1) of the CDA definition would be added to Benco's CDA at the end of the trust's particular taxation year, because, again, the condition for designation under s. 104(21) could not be satisfied before that time.
- In the situation, for example, where the trust was a graduated rate estate (GRE) with a February 28, 2026 year end, and Benco had a December 31, 2026 year end, if the GRE received or realized taxable dividends or capital gains in June 2025 and distributed those dividends or capital gains to Benco in December 2025 (with the expected designations under ss. 104(19) or (21) as at the trust year end), Benco would report those dividends or capital gains in its December 31, 2026 year, because that was the taxation year of Benco in which the particular taxation year of the trust ended.
Neal Armstrong. Summaries of 2 June 2026 STEP Roundtable, Q.4 under s. 104(20), s. 104(21) and s. 104(19).