Corporation A, which has a sanitary landfill site and must annually fund an qualifying environmental trust to provide a fund for the post-closure management of site, is subject to tax on the interest income generated by the trust under s. 107.3(1)(a), but may claim a tax credit equal to the Part XII.4 tax payable by the trust under section 127.41.
After providing a general discussion of the operation of ss. 127.41(1) to (3), including making the observation that “the Part XII.4 tax credit is an amount received by Corporation A in respect of Part XII.4 tax paid by the qualifying environmental trust,” CRA went on to find that the s. 127.41 refundable credit was not taxable under s. 12(1)(x).
|Locations of other summaries||Wordcount|
|Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) - Subparagraph 12(1)(x)(iv)||s. 12(1)(x) inapplicable to s. 127.41 credit||187|
Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Classification of Trusts for Income Tax Purposes", Chapter 2 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016.
Numerical example of refundable tax (pp. 104-5)
Assume that a qualifying environmental trust has a single beneficiary in a taxation year and earns $1,000 of investment income in the year. The beneficiary is a corporation whose federal income tax, after taking into account subsection 107.3(1), is nil because of other deductions to which it is entitled. In this case, the $1,000 of investment income is treated as income of the trust for the purposes of part XII.4. The same $1,000 is treated as the corporations income. The qualifying environmental trust is subject to federal tax under part XII.4 in the amount of $150. The corporation is then considered to have paid $150 under subsection 127.41(3) on account of its tax payable under part I. Since no tax is payable by the corporation, the corporation should be entitled to an income tax refund of the full amount of part XII.4 tax paid by the trust ($150).