CRA indicates that a disposition by a bare trust, or the trust’s winding-up, generally is not a disposition under the ITA

Even before taking into account the introduction of s. 150(1.2), s. 150(1.1)(b)(ii) required a trust which disposed of capital property in a year to file a T3 return for that year. Would a bare trust, that complied with the low-asset test in s. 150(1.2)(b), be required by s. 150(1.1)(b)(ii) to file a T3 return by virtue of a Canadian-dollar bond held by it maturing in the year?

CRA noted that under s. 104(1), the bare trust was not a trust for purposes of the definition in s. 248(1) of “disposition,” other than ss. (b)(v) and (k) of that definition, which were not relevant in this context, so that there would be no disposition by the bare trust of the bond.

If in the year of the maturity of the bond, the bare trust is wound up and the cash proceeds from the bond are transferred to the beneficiary, would this result in a disposition by the bare trust pursuant to s. (b)(v) of the definition of “disposition” (which refers to a bare trust ceasing to act as agent for a beneficiary with respect to any dealing with any of the trust’s property)?

CRA indicated that, notwithstanding the wording of s. (b)(v) of the definition of “disposition”, the exclusion in s. (e) of that definition (re no change in beneficial ownership) would apply. In particular, the bare trust would not be considered to be a trust for the purposes of s. (e)(ii) of the definition of “disposition” (which excludes from (e) any transfer from a trust to a beneficiary) and the s. (e) exclusion would apply provided that the property is transferred directly to the beneficiary.

Neal Armstrong. Summary of 4 June 2024 STEP Roundtable, Q.8 under s. 150(1.1)(b)(ii).