News of Note
CRA confirms that a s. 94(3)(a) trust had a non-resident portion arise on the death of a resident contributor so that it could elect under s. 94(3)(f)
Email this ContentA non-resident trust with only non-resident beneficiaries was a deemed resident trust under s. 94(3)(a) because three resident individuals had previously made direct contributions to the trust, and those contributions continue to be held by it. However, one of the contributors (A) died on September 1, 2025.
CRA indicated that, upon such death, the contribution of A ceased to form part of the deemed resident trust's resident portion, and became a non-resident portion, since A had ceased to be a resident contributor on death. Accordingly, the deemed resident trust could elect under s. 94(3)(f), with a resulting deemed disposition under s. 69(1) of the property in the non-resident portion to a non-resident portion trust.
If the property forming the non-resident portion earned dividend income of $5,000 from January 1 to August 31, 2025, and $10,000 from August 1, 2025 to December 31, 2025, the $5,000 would be included in the deemed resident trust's T3 return for 2025; and the $10,000 would be considered to belong to the non-resident portion of the trust and would be subject to Part I tax only to the extent of the application of s. 104(13) (i.e., not at all with only non-resident beneficiaries).
Regarding the allocation of expenses between the deemed resident trust and the non-resident portion trust, CRA stated that, based on the Canderel findings, a taxpayer can choose any method of determining profit that provides an accurate picture of the taxpayer's profit for the year, provided that it is not inconsistent with the provisions of the Act, rules of law, and well-accepted business principles.
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.13 under s. 94(3)(f).
CRA indicates that s. 105(1) can apply to the benefit arising from a trust paying the premiums on a policy owned by a corporation even though that corporation was not a trust beneficiary
A discretionary Ontario trust owns a life insurance policy on the life of Mrs. A, for which the Trust pays the insurance premiums (as authorized under the Trust indenture), and for which Mr. B (who is one of the trust beneficiaries) is the beneficiary.
CRA indicated that, if the insurance premiums were not paid as a distribution of trust capital to Mr. B, or as a payment of income included in computing his income, it appeared that, by the Trust paying the premiums on the policy for which Mr. B was the beneficiary, it could be considered that the Trust conferred a benefit on Mr. B, equal to the premiums paid, which would be included in Mr. B’s income under s. 105(1), irrespective of whether the premiums were paid out of the trust’s capital or income.
If this scenario were varied so that Mr. B was the shareholder of Opco (which, unlike Mr. B, was not a Trust beneficiary) and it was Opco who was the beneficiary of the policy, CRA considered that s. 105(1) could also apply to Opco, even though Opco was not a beneficiary of the Trust. This was so since s. 105(1) refers to the value of all benefits to a taxpayer from or under a trust, with there being no requirement in s. 105(1) that the taxpayer receiving the benefit from the trust be a beneficiary of the trust. Accordingly, similarly to the first scenario, it could be considered that the trust conferred a benefit on Opco by paying the policy premiums on a policy for which Opco was the beneficiary.
Neal Armstrong. Summary of 5 May 2026 Roundtable, 2026-1089321C6 - 2026 CALU – Q.3 under s. 105(1).
CRA indicates that it no longer discards Sched. 15s that are not required, so that it will not subsequently assess penalties where a subsequent Sched. 15 states “no change”
CRA had been following the practice of discarding Schedule 15 information where that filing was not required. If the trust, for a subsequent year, filed a Schedule 15 for that year and indicated no change from the prior year, CRA would assess a penalty because no previous information existed on file.
However, CRA indicated that it paused this practice of discarding beneficial ownership information in 2024 in order to re-examine its position - and has now determined to process and retain Schedules 15 submitted voluntarily by a trust, including some of those submitted over the past two years.
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.12 under Reg. 204.2(1).
CRA indicates that reasonable efforts to obtain a TIN entail repeated attempts and should be documented, and that checking a box may be acceptable written consent to use of a TIN
S. 237(1.1) requires a “disclosing person” to provide their tax identification number to a “collecting person,” being a person who is required to make an information return under the Act. Additionally, s. 237(2)(a) requires the collecting person to make a “reasonable effort” to obtain the number.
CRA indicated that repeated attempts at the last known contact would generally be consistent with “reasonable effort,” provided the collecting person maintained adequate records of their efforts. In particular, the collecting person should keep a record of the date of the verbal or written request, an example of the request form, the names of the people contacted, and copies of any written requests. Repeatedly sending mail to the same address might not amount to a reasonable effort if the collecting person had other means of contacting the disclosing person, such as a phone number or an email address.
Regarding the offence under s. 239(2.3) to knowingly use, communicate, or permit another to use or communicate a tax identification number other than for a purpose required under the Act or otherwise by law, without the written consent of the disclosing person, CRA noted that it would generally consider this requirement to be met where the disclosing person affirmatively checks any unchecked-by-default checkbox, which is separate from or clearly distinguished from general terms and conditions, using clear and specific language describing the particular use or communication of the tax identification number in question.
Neal Armstrong. Summaries of 2 June 2026 STEP Roundtable, Q.11 under s. 237(2) and s. 239(2.3).
CRA indicates that the possibility of engaging in a notifiable transaction does not establish a filing requirement
On the settlement of a family trust, the beneficiaries include Canadian corporations owned by an individual beneficiary, who may attend a US university and become a non-resident at some point.
CRA indicated that, as no person had yet entered into, or become contractually obligated to enter into, a transaction or a series of transactions that were the same as or substantially similar to the designated transactions in NT2023-02, the above possibility was not sufficient to establish that a notifiable transaction had been entered into, nor did it create any contractual obligation to enter into one – so that no notification through an RC312 filing was yet required.
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.10 under s. 237.4(4).
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
The 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).