Subsection 233.6(1) - Returns respecting distributions from non-resident trusts
Administrative Policy
20 June 2023 STEP Roundtable Q. 17, 2023-0959621C6 - Foreign Reporting, Estate,
S. 233.6(1) provides that foreign reporting (on Form T1142) is not required for a distribution from a foreign trust where the distribution is from an estate that arose as a consequence of death of an individual. Does CRA still maintain its position from the 2007 STEP Roundtable, Q.8 that reporting would be required if the estate has been administered and the assets are now held in a testamentary trust in light of the Hess, 2011 TCC 360, decision?
CRA confirmed that its position continues to be that, although Form T1142 does not have to be filed by a person who receives a distribution from a non-resident estate during the period of administration of the estate, once the estate has been administered, the Canadian beneficiary of any ongoing non-resident testamentary trust is required to file T1142 in any year where a distribution is received from a trust, or where a Canadian beneficiary becomes indebted to the trust. Generally, an estate is considered to be fully administered when the assets in the estate have been distributed and, if applicable, a clearance certificate is requested.
In Hess, the Tax Court concluded that no evidence had been provided to allow it to determine whether the estate had been administered, so that there was no reasonable basis for it to conclude that the testamentary trust was not an estate.
Forms
T1142 "Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust"
The following entities do not have to file this information return:
- mutual fund corporations;
- non-resident-owned investment corporations;
- persons who are exempt from tax under Part I of the Act;
- mutual fund trusts;
- trusts described in paragraphs (a) to (e.1) of the definition "trust" in subsection 108(1) of the Act;
- a "registered investment" under section 204.4 of the Act;
- a trust in which all persons beneficially interested are persons described above; or
- a partnership where all of the members are corporations or trusts referred to above or where the share of the partnership income or loss of non-resident members is 90% or more.
The taxpayer does not have to report distributions from or indebtedness owed to the following trusts:
- a trust described in Income Tax Regulation 6803. Generally, this is a trust governed by a U.S. Individual Retirement Account (IRA);
- a non-resident trust described in paragraph (b) of the definition "exempt trust" in subsection 233.2(1). Generally, this is a trust that is exempt from income tax under the taxation laws of the taxing jurisdiction where the trust is resident, that is principally providing superannuation, pension, retirement or employee benefits, and that is either maintained primarily for non-resident individuals or is governed by an employee sharing plan;
- a non-resident trust for which any of T1134-A, Information Return Relating to Foreign Affiliates that are not Controlled Foreign Affiliates,T1134-B,Information Return Relating to Controlled Foreign Affiliates, T1135,Information Return Relating to Specified Foreign Property or T1141, Information Return in Respect of Transfers or Loans to a Non-resident Trust, is required to be filed.