Kowarsky Trust – Tax Court of Canada finds that the dissolution of a trust did not terminate its taxation year

The taxpayer was an alter ego trust that was wound up on December 30, 2023. It was late in filing the Schedule of information required by the newly introduced Reg. 204.2, which applies to trusts whose taxation years “end after December 30, 2023.” The trust argued that its 2023 taxation year ended when it ceased to exist on December 30, 2023, and therefore was not subject to Regulation 204.2.

Rabinovitch J noted that the text of s. 249(1)(c) was clear in defining the taxation year of most trusts as the calendar year, and that various provisions, such as ss. 132(6.2), 146(4), and 250(6.1), contemplate taxation years for portions of which the taxpayer no longer existed. Furthermore, the early termination of a trust's taxation year on dissolution would impose accelerated return-filing requirements, which likely was not intended.

Accordingly, he concluded that the taxpayer was subject to a late filing penalty under s. 162(7). A due diligence defence was unavailable, as the trust's accountant should have been aware of the CRA's position regarding when the taxation year ended.

Neal Armstrong. Summaries of Gerald Kowarsky Trust v. The King, 2026 TCC 174 under ITA s. 249(1)(c) and s. 162(7) and Interpretation Act, s. 42(3) and s. 15(2)(b).