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Enter the amount of your federal dividend tax credit on line 40425 of your return. Complete Form 428 for your province or territory of residence to calculate the provincial or territorial dividend tax credit that you may be entitled to.
- Province Or Territory of Residence
The CRA needs this information to calculate your taxes and...
- T5 Slip
The dividend tax credit to which you are entitled is shown...
- T3 Slip
Include any footnoted amount for foreign non-business income...
- T5013 Slip
The T5013 Information slip for the authorized member of a...
- Province Or Territory of Residence
- Overview
- Table of contents
- Find out if this guide is for you
- What's new for 2023
- Before you start
- Definitions
- Chapter 1 – General information
- Chapter 2 – Completing the T3 return
- Chapter 3 – Trust schedules and forms
- Note
T4013(E) Rev. 23
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If you are outside Canada and the United States, call 613-940-8495. The CRA only accepts collect calls made through a telephone operator. After your call is accepted by an automated response, you may hear a beep and notice a normal connection delay. This service operates in Eastern Standard Time and is open Monday to Friday from 8:00 am to 8:00 pm and Saturday from 9:00 am to 5:00 pm.
La version française de cette publication est intitulée T4013, T3 – Guide des fiducies.
•Before you start
•Definitions
•The meaning of certain terms
•Chapter 1 – General information
•Types of trusts
•Code number for the type of trust
A T3 Trust Income Tax and Information Return (T3 return) is both a return of income and a general information return. A T3 trust return serves to report not only information about the reporting trust, but also additional information, such as that affecting the taxation of persons (for example, beneficiaries or settlors) having some connection to the trust.
This guide provides information on how to complete the T3 return, the T3 slip, Statement of Trust Income Allocations and Designations, and the T3SUM Summary of Trust Income Allocations and Designations.
Use this guide if you are filing a T3 return for either a testamentary trust or an inter vivos trust. For more information, see Types of trusts.
The word "you" throughout the guide refers to the trustee, executor, administrator, liquidator, or anyone preparing the T3 return for a trust. For tax purposes, estates and trusts are treated similarly. In calculating the income of an estate, references in this guide to a trust or trust property include "estate" or "estate property".
The "Act" refers to the Income Tax Act. Unless otherwise stated, all legislative references within this guide are to the Income Tax Act and the Income Tax Regulations. You can find a list of these references in the Index at the end of the guide.
For a list of Income Tax Act references, go to Justice Laws.
We list the service enhancements and major changes below, including announced income tax changes that are not yet law at the time this guide was published. If they become law as proposed, they will be effective for 2023 or as of the dates given. For more information about these changes, see the areas outlined in colour in this guide.
Find out if you need to read the whole guide
If you are filing a T3 return for an estate that has only pension income, investment income, or death benefits, you do not need to read the entire guide. Use the ▲ to find the information you may need. This symbol appears in the table of contents, in the right margins of the guide, and in the left margins of the return beside the lines that may relate to your situation. Before you begin, be sure to read: Chapter 1 – General information Step 1 – Identification and other required information Chapter 4 – T3 slip and T3 summary
Determine the residence of the trust or estate
A trust may be either factually resident, non-resident or deemed to be resident in Canada. To assist in making this determination see Income Tax Folio S6-F1-C1, Residence of a Trust or Estate.
Non-resident trusts or deemed resident trusts
If you are the trustee for a non-resident trust, or a deemed resident trust, special rules apply in some situations. Not all of these rules are covered in this guide. For more information, call one of the phone numbers listed under "Non residents and deemed resident trusts".
In this section, we define the technical terms we use in this guide.
Administrator – A person appointed by a court to settle the estate of a deceased person, generally in situations where an individual dies without a will or a testator’s will does not name an executor.
Allocate, allocation – To assign or set apart income from a trust to a beneficiary. An amount can only be allocated to a beneficiary when one of the following applies:
•the beneficiary is entitled to the income in the year that it is earned by the trust, under the trust document
•the trust makes a preferred beneficiary election to include the trust income in the beneficiary’s income
•the beneficiary is paid income in the year that it is earned by the trust, at the discretion of the trustee
Types of trusts ▲
A trust is either a testamentary trust or an inter vivos trust. Each trust has different tax rules. Chart 1 – Types of Trusts below, describes different types of trusts and arrangements. Testamentary trust A testamentary trust is a trust or estate that is generally created on and as a result of the death of an individual. This includes a trust created under the terms of an individual’s will or by court order in relation to the deceased individual’s estate under provincial or territorial law. Generally, this type of trust does not include a trust created by a person other than a deceased individual. It also does not include a trust created after November 12, 1981, if any property was contributed to it other than by a deceased individual as a consequence of the individual's death. For rules about testamentary trusts created before November 13, 1981, call 1-800-959-8281. If the assets are not distributed to the beneficiaries according to the terms of the will, the testamentary trust may become an inter vivos trust. For tax years ending after December 20, 2002, a testamentary trust may become an inter vivos trust if the trust incurs a debt or other obligation to pay an amount to, or guaranteed by, a beneficiary or any other person or partnership (any or all referred to as specified party), with whom any beneficiary of the trust does not deal at arm's length. This does not apply for certain debts or other obligations, including those that are: incurred by the trust in satisfaction of a beneficiary's right to enforce payment of an amount payable by the trust to the beneficiary or to receive any part of the trust's capital owed to the beneficiary as a result of services provided by the beneficiary for the trust owed to the beneficiary as a result of a payment on behalf of the trust for which property was transferred to the specified party within 12 months of the payment and the beneficiary would have made the payment had they been dealing with the trust at arm's length Inter vivos trust An inter vivos trust is a trust that is not a testamentary trust. Chart 1 – Types of Trusts Type of trust General information Graduated rate estate (GRE) A graduated rate estate, of an individual at any time, is the estate that arose on and as a consequence of the individual’s death, if all of the following conditions are met: that time is no more than 36 months after the death of the individual the estate is at that time a testamentary trust the individual’s social insurance number is provided in the estate’s T3 return of income for the tax year that includes that time and for each of its earlier tax years that ended after 2015 (36 month period after the death of the individual) the estate designates itself as the graduated rate estate of the individual in its T3 return of income no other estate designates itself as the graduated rate estate of that individual in a T3 return of income for a tax year that ends after 2015 An estate can only be a “graduated rate estate” for up to 36 months following the death of an individual. The estate will cease to be a graduated rate estate if it is still in existence at the end of the 36 month period. Spousal or common-law partner trust A post-1971 spousal or common-law partner trust includes both a testamentary trust created after 1971, and an inter vivos trust created after June 17, 1971. In either case, the living beneficiary spouse or common-law partner is entitled to receive all the income that may arise during the lifetime of the spouse or common-law partner. That spouse or common-law partner is the only person who can receive, or get the use of, any income or capital of the trust during their lifetime. A pre-1972 spousal trust includes both a testamentary trust created before 1972, and an inter vivos trust created before June 18, 1971. In either case, the beneficiary spouse was entitled to receive all the income during the spouse's lifetime, and no other person received, or got the use of, any income or capital of the trust. These conditions must be met for the period beginning on the day the trust was created, up to the earliest of the following dates: the day the beneficiary spouse dies January 1, 1993 the day on which the definition of a pre-1972 spousal trust is applied Personal trust This is a trust (other than a trust that is, or was at any time after 1999, a unit trust) that is one of the following: graduated rate estate trust in which no beneficial interest was acquired for consideration payable directly or indirectly to: the trust any person or partnership that has made a contribution to the trust by way of transfer, assignment or other disposition of property For 2016 and subsequent tax years, only a graduated rate estate automatically qualifies as a personal trust without regard to the circumstances in which beneficial interest in the trust has been acquired. Alter ego trust This is a trust created after 1999 by a settlor who was 65 years of age or older at the time the trust was created, for which the settlor is entitled to receive all the income that may arise during their lifetime, and is the only person who can receive, or get the use of, any income or capital of the trust during the settlor's lifetime. A trust will not be considered an alter ego trust if it so elects in its T3 return for its first tax year. Communal organization We consider a trust to exist when a congregation meets all of the following conditions: has members who live and work together follows the practices and beliefs of, and operates according to the principles of, the religious organization of which it is a part does not permit its members to own property in their own right requires that its members devote their working lives to the congregation's activities carries on one or more businesses directly, or owns all of the shares of the capital stock of a corporation (except directors' qualifying shares), or every interest in a trust or other person that carries on the business to support or sustain its members or the members of another congregation The communal organization has to pay tax as though it were an inter vivos trust. However, it can elect to allocate its income to the beneficiaries. For more information, see Information Circular IC78-5R, Communal Organizations. Deemed resident trust A trust is deemed resident in Canada where there is one of the following: a "resident contributor" a "resident beneficiary" under the trust A "resident contributor" to a trust at a particular time means a person that is, at that time, resident in Canada and has at or before that time made a contribution to the trust. A "resident beneficiary" under a trust at a particular time is a person (other than an “exempt person” or “successor beneficiary”) that, at that time, is a beneficiary under the trust, is resident in Canada, and there is a “connected contributor” to the trust. A “connected contributor” is a person who made a contribution either while resident in Canada, within 60-months of moving to Canada, or within 60-months of leaving Canada. For tax years that ended before February 11, 2014, individuals who had been resident in Canada for a period of, (or periods the total of which is) 60 months or less were exempted from treatment as resident contributors or connected contributors. This exemption also applies to the tax years of non-resident trusts that end before 2015 if all of the following conditions are met: no contributions were made to the trust after February 10, 2014 and before 2015 at any time that is after 2013 and before February 11, 2014, the 60-month exemption applied in respect of the trust These trusts are deemed resident for several purposes including: filing income tax returns and paying income tax under Part I of the Act withholding tax on amounts paid to non-residents under Part XIII certain filing obligations relating to ownership of foreign property, money received from or given to foreign entities The trusts are NOT considered resident for calculating a Canadian’s liability when paying the trust (i.e. when a resident taxpayer pays the deemed resident trust it is required to withhold Part XIII). They are also not considered resident for the purpose of determining a Canadian resident's (other than the trust) foreign reporting requirements. If you need help in determining whether the trust is a deemed resident of Canada, call one of the telephone numbers listed in Non-resident trusts and deemed resident trusts. Employee benefit plan Generally, this is any arrangement under which an employer makes contributions to a custodian, and under which one or more payments will be made to, or for the benefit of, employees, former employees, or persons related to them. For more information, and for details on what we consider to be an employee benefit plan and how it is taxed, see archived Interpretation Bulletin IT-502, Employee Benefit Plans and Employee Trusts, and its Special Release. Note: An employee benefit plan has to file a T3 return if the plan or trust has tax payable, has a taxable capital gain, or has disposed of capital property. Because the allocations are taxed as income from employment to the beneficiaries, report the allocations on a T4 slip, not on a T3 slip. For more information, see Guide RC4120, Employers' Guide – Filing the T4 Slip and Summary. Employee life and health trust (ELHT) This is a trust, established by one or more employers, that meets a number of conditions under subsection 144.1(2) of the Act. The trust's only purpose is the payment of designated employee benefits (DEBs) for employees and certain related persons (certain limitations apply to the rights and benefits that may be provided to key employees). Employers can deduct contributions made to the trust, as long as they are for DEBs and meet the conditions in subsection 144.1(4). Employee contributions are permitted, but are not deductible. However, employee contributions may qualify for the medical expense tax credit, to the extent that they are made to a private health services plan. The trust can deduct amounts paid to employees or former employees for DEBs and can generally carry non-capital losses back or forward three years. Any amount received from an ELHT must be included in income, unless the amount was received as the payment of a DEB. Payments of DEBs to non-resident employees or former employees will generally not be subject to tax under Part XIII. For more information on ELHTs, designated employee benefits and key employees, see section 144.1 of the Act. Employee trust This is a trust. Generally, it is an arrangement established after 1979, under which an employer makes payments to a trustee in trust for the sole benefit of the employees. The trustee has to elect to qualify the arrangement as an employee trust on the trust's first T3 return. The employer can deduct contributions to the plan only if the trust has made this election and filed it no later than 90 days after the end of its first tax year. To maintain its employee trust status, each year the trust has to allocate to its beneficiaries all non-business income for that year, and employer contributions made in the year. Business income cannot be allocated and is taxed in the trust. For more information, see archived Interpretation Bulletin IT-502, Employee Benefit Plans and Employee Trusts, and its Special Release. Note: An employee trust has to file a T3 return if the plan or trust has tax payable, has a taxable capital gain, or has disposed of capital property. Because the allocations are taxed as income from employment to the beneficiaries, report the allocations on a T4 slip, not on a T3 slip. For more information, see Guide RC4120, Employers' Guide – Filing the T4 Slip and Summary. Environment Quality Act trust A trust under paragraph 149(1)(z.1) of the Act. This is a trust that was created because of a requirement imposed by section 56 of the Environment Quality Act, R.S.Q., c. Q-2. The trust must meet all of the following conditions: the trust is resident in Canada the only persons that are beneficially interested are one of the following: Her Majesty in right of Canada Her Majesty in right of a province a municipality (as defined in section 1 of that Act) that is exempt because of subsection 149(1) from tax under Part 1 on all of its taxable income. Certain Government Funded Trusts These are inter vivos trusts under paragraph 81(1)(g.3) of the Act and are government funded trusts. established under: the 1986-1990 Hepatitis C Settlement Agreement the Pre-1986/Post-1990 Hepatitis C Settlement Agreement the Indian Residential Schools Settlement Agreement entered into by Her Majesty in right of Canada on May 8, 2006 the September 15, 2021 Settlement Agreement relating to long-term drinking water quality for impacted First Nations, or the January 18, 2023 Settlement Agreement relating to the attendance of day scholars at residential schools. As long as no contribution to the trust, other than contributions provided for under the Agreement, is made before the end of a tax year of the trust, the trust's income is generally exempt from income tax for that tax year. Insurance segregated fund trust This is a related segregated fund of a life insurer for life insurance policies and is considered to be an inter vivos trust. The fund's property and income are considered to be the property and income of the trust, with the life insurer as the trustee. Note: You have to file a separate T3 return and financial statements for each fund. If all the beneficiaries are fully registered plans, complete only the identification and certification areas of the T3 return and enclose the financial statements. If the beneficiaries are both registered and non-registered plans, report and allocate only the income that applies to the non-registered plans. First Home Savings Account (FHSA) trust An FHSA trust has to complete and file a T3 return if the trust meets one of the following conditions: An FSHA trust has to complete and file a T3 return if the trust carried on a business or held non-qualified investments during the tax year, the trust will be taxable to the extent of the income earned from that business or those investments (Type of trust code 342 on the T3 Return). For more information, see “Line 23 – Non-qualified investments for TFSA, RRSP, RRIF, RDSP, RESP trusts, and FHSA trusts, or disposition of interest in a partnership reported under subsection 100(1.1) of the Act”. When the last holder of an FHSA dies, and the trust still exists after the exempt period, it is deemed to dispose of all its property at fair market value and immediately reacquire it at the same value on January 1 following the end of the exempt period. The trust loses its FHSA status, becomes a taxable inter vivos trust from that point on and is subject to the normal rules for inter vivos trusts. For more information, go to First Home Savings Account (FHSA). Joint spousal or common-law partner trust This is a trust created after 1999 by a settlor who was 65 years of age or older at the time the trust was created. The settlor and the settlor's spouse or common-law partner are entitled to receive all the income that may arise from the trust before the later of their deaths. They are the only persons who can receive, or get the use of, any income or capital of the trust before the later of their deaths. Lifetime benefit trust This is a trust that is at any particular time a lifetime benefit trust with respect to a taxpayer and the estate of a deceased individual if both of the following conditions are met: immediately before the death of the deceased individual, the taxpayer meets one of the following conditions: was both a spouse or common-law partner of the deceased individual and mentally infirm was both a child or grandchild of the deceased individual and dependent of the deceased individual for support because of mental infirmity the trust is, at the particular time, a personal trust under which: no person other than the taxpayer may receive or otherwise obtain the use of, during the taxpayer’s lifetime, any of the income or capital of the trust the trustees: are empowered to pay amounts from the trust to the taxpayer are required in determining whether to pay, or not to pay, an amount to the taxpayer to consider the needs of the taxpayer including, without limiting the generality of the foregoing, the comfort, care and maintenance of the taxpayer Master trust This is a trust. A trust can elect to be a master trust if during the entire time since its creation it met all of the following conditions: it was resident in Canada its only undertaking was the investing of its funds it never borrowed money except for a term of 90 days or less (for this purpose, the borrowing cannot be part of a series of loans or other transactions and repayments) it has never accepted deposits each of its beneficiaries is a trust governed by a deferred profit sharing plan, a pooled registered pension plan or a registered pension plan Note: A master trust is exempt from Part I tax. A trust can elect to be a master trust by indicating this in a letter filed with its T3 return for the tax year the trust elects to become a master trust. Once made, this election cannot be revoked. However, the trust must continue to meet the conditions listed above to keep its identity as a master trust. After the first T3 return is filed for the master trust, you do not have to file any further T3 returns for this trust. If a future T3 return is filed, we will assume the trust no longer meets the above conditions. The trust will not be considered a master trust and must file yearly T3 returns from then on. If the trust is wound up, send to the CRA a letter to tell us the wind-up date. Mutual fund trust This is a unit trust that resides in Canada. It also has to comply with the other conditions of the Act, as outlined in section 132 and the conditions established by Income Tax Regulation 4801. For a mutual fund trust that is a public trust, or public investment trust, there are certain reporting requirements these types of trusts must meet. For more information, see below or go to Trust types and codes. Public trust A public trust is, at any time, a mutual fund trust of which its units are listed, at that time, on a designated stock exchange in Canada. Public investment trust A public investment trust is, at any time, a trust that is a public trust, where all or substantially all of the fair market value of the property is, at that time, attributable to the fair market value of property of the trust that is: units of public trusts partnership interests in public partnerships shares of the capital stock of public corporations any combination of those properties Non-profit organization This is an organization (for example, club, society, or association) that is usually organized and operated exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit. The organization will generally be exempt from tax if no part of its income is payable to, or available for, the personal benefit of a proprietor, member, or shareholder. For more information, see archived Interpretation Bulletin IT-496, Non-Profit Organizations. If the main purpose of the organization is to provide services such as dining, recreational, or sporting facilities to its members, we consider it to be a trust. In this case, the trust is taxable on its income from property, and on any taxable capital gains from the disposition of any property that is not used to provide those services. The trust is allowed a deduction of $2,000 when calculating its taxable income. Claim this on line 36 of the T3 return. For more information, see archived Interpretation Bulletin IT-83, Non-Profit Organizations – Taxation of Income From Property. Note: A non-profit organization may have to file Form T1044, Non-Profit Organization (NPO) Information Return. For more information, see Guide T4117, Income Tax Guide to the Non-Profit Organization (NPO) Information Return. Nuclear Fuel Waste Act trust A trust under paragraph 149(1)(z.2) of the Act. This is a trust that was created because of a requirement imposed by subsection 9(1) of the Nuclear Fuel Waste Act. The trust must meet all of the following conditions: the trust is resident in Canada the only persons that are beneficially interested are one of the following: Her Majesty in right of Canada Her Majesty in right of a province a nuclear energy corporation (as defined in section 2 of that Act) all the shares of the capital stock of which are owned by one or more persons described in clause (a) or (b) the waste management organization established under section 6 of that Act if all shares of its capital stock are owned by one or more nuclear energy corporations described in clause (c) Atomic Energy of Canada Limited, being the company incorporated or acquired in accordance with subsection 10(2) of the Atomic Energy Control Act Pooled registered pension plans (PRPP) Pooled Registered Pension Plans must operate through an arrangement acceptable to the Minister. All property held in connection with a PRPP is required to be held in trust by the administrator on behalf of the plan members. As a result, a PRPP is generally treated as a trust for tax purposes, the administrator is the trustee of that trust, the members are the beneficiaries, and the trust property is the property held in connection with the plan. A pooled registered pension plan trust will be excluded for purposes of the 21 year deemed disposition rule and other specified measures. When certain criteria are met, a pooled registered pension plan trust will be exempt from Part 1 tax. For more information, go to The Pooled Registered Pension Plan (PRPP). Qualified disability trust (QDT) A qualified disability trust for a tax year is a testamentary trust that arose on the death of a particular individual that jointly elects (using Form T3QDT, Joint Election for a Trust to be a Qualified Disability Trust), with one or more beneficiaries under the trust, in its T3 return of income for the year to be a qualified disability trust for the year. In addition, all of the following conditions have to be satisfied: the election must include each electing beneficiary’s Social Insurance Number each electing beneficiary must be named as a beneficiary by the particular individual in the instrument under which the trust is created each electing beneficiary must, for the beneficiary’s tax year in which the trust’s year-ends, be eligible for the disability tax credit no beneficiary who elects with the trust to be a qualified disability trust for the year can elect with any other trust for the other trust to be a qualified disability trust for the other trust’s tax year that ends in the beneficiary’s tax year the trust must be factually resident in Canada (i.e., resident determined without regard to section 94 of the Act) the trust is not subject to the recovery tax for the year For a trust that was a qualified disability trust in a previous tax year, refer to Line 11 – Federal recovery tax. Qualifying environmental trust (QET) Generally, this is a trust resident in Canada or a province, or a corporation resident in Canada that is licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee, or that is not an excluded trust and maintained at that time for the sole purpose of funding the reclamation of a qualifying site in Canada or in the province that is, or may become, required to be maintained under the terms of a qualifying contract, or a qualifying law, and that had been used primarily for, or for any combination of: the operation of a mine the extraction of clay, peat, sand, shale or aggregates (including dimension stone and gravel) the deposit of waste If the trust was created after 2011, the operation of a pipeline, as long as the other requirements defined in subsection 211.6(1) of the Act are met Under the definition, the trust is, or may become, required to be maintained under the terms of a contract entered into with the federal or provincial Crown or if the trust was established after 2011, by an order of a tribunal constituted under a federal or provincial law. Certain conditions exist that may exclude a trust from being a QET. For more information, please see the definition of a QET in subsection 211.6(1). Real estate investment trust (REIT) A trust is a REIT for a tax year, if it is resident in Canada throughout the year and meets a number of other conditions, including all of the following: at least 90% of the trust’s non-portfolio properties must be qualified REIT properties at least 90% of the trust’s gross REIT revenue for the tax year must be derived from rent, from real properties, interest, capital gains from dispositions of real properties which are capital properties, dispositions of eligible resale properties, dividends and royalties at least 75% of the trust’s gross REIT revenues for the tax year must be derived from rent from real properties, interest from mortgages on real properties and capital gains from dispositions of real properties which are capital properties Registered disability savings plan (RDSP) trust An RDSP trust has to complete and file a T3 return if the trust has borrowed money and subparagraph 146.4(5)(a)(i) or 146.4(5)(a)(ii) of the Act applies. If this does not apply and the trust carried on a business or held non-qualified investments during the tax year, you have to complete a T3 return to calculate the taxable income from the business or non-qualified investments, determined under subsection 146.4(5). If the trust is reporting capital gains or losses, it has to report the full amount (that is, 100%) on line 1 of the T3 return. Registered education savings plan (RESP) trusts If an RESP trust held non-qualified investments during the tax year, you have to complete and file a T3 return to calculate the taxable income from non-qualified investments, determined under subsection 146.1(5) of the Act. If the trust is reporting capital gains or losses, it has to report the full amount (that is, 100%) on line 1 of the T3 return. Registered retirement savings plan (RRSP), or Registered retirement income fund (RRIF) trusts An RRSP, or RRIF trust has to complete and file a T3 return if the trust meets one of the following conditions: the trust has borrowed money and paragraph 146(4)(a) or 146.3(3)(a) of the Act applies the RRIF trust received a gift of property and paragraph 146.3(3)(b) of the Act applies the last annuitant has died and paragraph 146(4)I or subsection 146.3(3.1) of the Act applies. If this is the case, claim an amount on line 47 of the T3 return only if the allocated amounts were paid in accordance with paragraph 104(6)(a.2) If the trust does not meet one of the above conditions and the trust held non-qualified investments during the tax year, you have to complete a T3 return to calculate the taxable income from non-qualified investments, determined under subsection 146(10.1) or 146.3(9). If the trust is reporting capital gains or losses, it has to report the full amount (that is, 100%) on line 1 of the T3 return. If the trust does not meet one of the above conditions and the trust carried on a business, you have to complete a T3 return to calculate the taxable income of the trust from carrying on a business. Do not include the business income earned from qualified investments for the trust. Retirement compensation arrangement (RCA) This arrangement exists when an employer makes contributions for an employee's retirement, termination of employment, or any significant change in services of employment. For more information, see Retirement Compensation Arrangements Web page. Note: If a trusteed arrangement is comprised of both an RCA and an employee benefit plan, you must file a T3 return for the portion of the arrangement that is treated as an employee benefit plan. Form T3-RCA, Retirement Compensation Arrangement (RCA) – Part XI.3 Tax Return, has to be filed for the RCA portion. Salary deferral arrangement (SDA) Generally, this is a plan or arrangement (whether funded or not) between an employer and an employee or another person who has a right to receive salary or wages in a year after the services have been performed. For more information, see archived Interpretation Bulletin IT-529, Flexible Employee Benefit Programs. Note: If a salary deferral arrangement is funded, we consider it a trust, and you may have to file a T3 return. The deferred amount is deemed to be an employment benefit, so you report it on a T4 slip, not on a T3 slip. The employee has to include the amount in income for the year the services are performed. The employee also has to include any interest, or other amount earned by the deferred amount. For more information, see Guide RC4120, Employers' Guide – Filing the T4 Slip and Summary. Specified investment flow- through (SIFT) trust This is a trust (other than a trust that is a real estate investment trust for the tax year or an entity that is an excluded subsidiary entity) that meets all of the following conditions at any time during the tax year: the trust is resident in Canada investments in the trust are listed or traded on a stock exchange or other public market the trust holds one or more non-portfolio properties For more information, go to Specified investment flow-through trust income and distribution tax. Specified trust (for purposes of this guide only) This is a trust that is: an amateur athlete trust; an employee life and health trust; an employee trust; a master trust; a trust governed by a deferred profit sharing plan, an employee benefit plan, an employee profit sharing plan, a foreign retirement arrangement, a pooled registered pension plan; a registered disability savings plan; a registered education savings plan, a registered pension plan, a registered retirement income fund, a registered retirement savings plan, or a registered supplementary unemployment benefit plan; a tax-free savings account trust; a related segregated fund trust; a retirement compensation arrangement trust; a trust whose direct beneficiaries are one of the above mentioned trusts; a trust governed by an eligible funeral arrangement or a cemetery care trust; a communal organization; and a trust where all or substantially all of the property is held for the purpose of providing benefits to individuals from employment or former employment. Tax-free savings account (TFSA) trust A TFSA trust has to complete and file a T3 return if the trust meets one of the following conditions: If a TFSA trust carried on a business or held non-qualified investments during the tax year, the trust will be taxable to the extent of the income earned from that business or those investments (Type of trust code 320 on the T3 Return). For more information, see Line 23 – Non qualified investments for TFSA, RRSP, RRIF, RDSP, RESP, and FHSA trusts, or disposition of interest in a partnership reported under subsection 100(1.1) of the Act. When the last holder of a TFSA dies, and the trust still exists after the exempt period, it is deemed to dispose of all its property at fair market value and immediately reacquire it at the same value on January 1 following the end of the exempt period. The trust loses its TFSA status becomes a taxable inter vivos trust from that point on (Trust code 318) and is subject to the normal rules for inter vivos trusts. Additionally, in its first year as a taxable inter vivos trust, the trust is taxable on any income and gains earned but not distributed during the exempt period. For more information go to, Tax-Free Savings Account (TFSA). Unit trust This is a trust for which the interest of each beneficiary can be described at any time by referring to units of the trust. A unit trust must also meet one of the three conditions described in subsection 108(2) of the Act. Bare Trust The term “bare trust” is not defined in the Act. A “trust” for the purposes of the Act is defined in subsection 104(1) of the Act. That subsection provides that, if the arrangement is one in which the trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property and the trust is not a trust described in paragraphs (a) to (e.1) of the definition of “trust” in subsection 108(1) of the Act, the arrangement is deemed not to be a trust for the purposes of the Act, with certain exceptions including the filing of a return of income. These arrangements are generally known as “bare trusts”. A trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary and the trustee’s only function is to hold legal title to the property. In order for the trustee to be considered as the agent for all the beneficiaries of a trust, it would generally be necessary for the trust to consult and take instructions from each and every beneficiary with respect to all dealings with all of the trust property. Land Settlement Trust The term “land settlement trust” is not defined in the Act. Generally, a land settlement trust is a trust created to hold the settlement funds paid for a First Nation’s land claim.
Code number for the type of trust
A trust is either a testamentary trust or an inter vivos trust. Enter the code number for the type of trust. Testamentary trusts: code 900, for a testamentary trust that is not identified by one of the other testamentary trust codes code 901, for a Lifetime Benefit trust code 903, for an estate that designated itself as a graduated rate estate (applicable for tax years ending after 2015) code 904, for a Qualified Disability trust (applicable for tax years ending after 2015 when Form T3QDT, Joint Election for a Trust to be a Qualified Disability Trust is submitted) code 905, for a Spousal or Common-Law partner trust Inter vivos trusts code 300, Other trust code 301, for a Registered Retirement Savings Plan (RRSP) trust liable for tax under Part I code 302, for a Registered Retirement Income Fund (RRIF) trust liable for tax under Part I code 303, for a Registered Disability Savings Plan (RDSP) trust liable for tax under Part I code 304, for a Real Estate Investment trust (REIT) code 306, for a Salary Deferral Arrangement (SDA) code 307, for a Bare Trust code 311, for a Land Settlement Trust code 314, for an Environment Quality Act trust described in paragraph 149(1)(z.1) code 315, for a Nuclear Fuel Waste Act trust described in paragraph 149(1)(z.2) code 316, for an Hepatitis C trust described in paragraph 81(1)(g.3) code 317, for an Indian Residential Schools trust described in paragraph 81(1)(g.3) code 318, for a former tax-free savings account (TFSA) trust after the end of the exempt period code 319, for a Registered Education Savings Plans (RESP) trust liable under Part I code 320, for a TFSA trust liable for tax under Part I code 321, for an Employee Life and Health trust (ELHT) code 322, for a Spousal or Common-Law Partner trust. If the spouse or common-law partner died in the year, see the Note at the end of this listing code 323, for a Unit trust code 324, for a Mutual Fund trust code 325, for a Communal Organization trust code 326, for an Employee Benefit Plans trust code 327, for an Insurance Segregated Fund-Fully registered trust code 328, for an Insurance Segregated Fund-Partially registered trust code 329, for an Insurance Segregated Fund-non-registered code 330, for a Non-profit Organization-Subsection 149(5) trust code 331, for a Non-profit Organization trust-subsection 149(1)(l) code 332, for an Employee trust code 333, for a Blind/Revocable trust code 334, for a Personal trust code 335, for a Joint Spousal or Common-Law Partner trust. If the last surviving beneficiary (either the settlor, or the spouse or common law partner, as the case may be) died in the year; see the Note at the end of this listing. code 336, for an Alter Ego trust. If the settlor died in the year, see the Note at the end of this listing. code 337, for a Master trust code 338, for a Specified Investment Flow-Through (SIFT) trust code 340, Safe Drinking Water trust code 342, First Home Savings Account (FHSA) code 519, for a Pooled Registered Pension Plans (PRPP) Note If the trust was a trust identified as code 322, 335, or 336 and the trust is continued after the death of the last surviving lifetime beneficiary (either the settlor, or the spouse or common-law partner, as the case may be), use trust type code 300 (other trust) on all T3 returns filed for a tax year ending after the date of death.
Who should file ▲
A trust (including a bare trust) that is required to file a T3 return, other than a listed trust generally must report beneficial ownership information on Schedule 15. For more information about Schedule 15, see “Schedule 15 – Beneficial Ownership Information of a Trust”. The rules have changed in respect of the situations for which a T3 Return must be filed, effective for trust tax years ending on or after December 31, 2023. Refer to the applicable section below that corresponds to the tax year of the trust to determine whether the trust must file a T3 return.
Note
Due to the nature of bare trusts, not all information requested on the T3 Return is required. Refer to specific instructions for bare trusts at the end of Step 1.
Step 1 – Identification and other required information ▲
Complete all items on page 1 of the T3 return. The assessment of the return may be delayed if you do not provide all the information. If this is the first year of filling a T3 return, you may register for a trust account number online using the Trust account registration service through one of the Canada Revenue Agency (CRA)'s secure portals. If this is the first year filing a T3 return, send us a copy of: The trust document or last will and testament (unless already filed with the T3 APP, or sent after completing the online trust account registration process). Trust account number – If we have assigned an account number to the trust, enter it in this space. Include this number on all correspondence related to the trust. If this is the first return for the trust, we will issue an account number, which will appear on the notice of assessment. Name of trust – Use the same name on all returns and correspondence for the trust. The name of the trust will be modified to meet our requirements if it is longer than 60 characters. For guidelines on what name to use for a bare trust see “What to file - Instructions for bare trusts”. Residence of trust – A trust resides where its real business is carried on, which is where the central management and control of the trust actually takes place. For information about the residence of a trust or estate, see Income Tax Folio S6-F1-C1, Residence of a Trust or Estate. Trustee Information – Enter the full name of the trustee. If the trust has more than one trustee, choose one trustee to be the CRA's primary contact. The trustee can be an individual or a non-individual. Choose only one of the two options and fill in the required information about the trustee. If the trustee is a non-individual then enter the full name of the contact person. Mailing address – We may modify part of your address to meet Canada Post's requirements. Therefore, the address on any cheques or correspondence we send you may be different from the one you indicate on the trust's return. If you include the name and mailing address of a contact person, we will send any cheques or correspondence for the trust in care of that person. Designated Aboriginal settlement lands – If the trust resides on designated Aboriginal settlement lands, answer yes, and enter the name and settlement number in the spaces provided. The settlement lands and their numbers are as follows: British Columbia: Nisga’a 09001 Yukon: Carcross/Tagish 11001 Champagne and Aishihik 11002 Kluane 11003 Kwanlin Dun 11004 Little Salmon/Carmacks 11006 Nacho Nyak Dun 11007 Selkirk 11009 Ta’an Kwäch’än 11010 Teslin Tlingit 11011 Tr’ondëk Hwëch’in 11012 Vuntut Gwitchin 11013 Northwest Territories: Délînê Got'înê 10015 Tlicho 10008 Newfoundland and Labrador: Nunatsiavut Government 00010 When you enter this information on the return, we will transfer part of any tax payable to the government of the Aboriginal settlement where the trust resides. Date of residency – Provide the date the trust became a resident of Canada or ceased to be a resident of Canada during the tax year, if applicable. Deemed resident trust – Indicate if the trust is a deemed resident trust and provide the name of any other country in which the trust is considered to be resident. See the definition of a deemed resident trust in Chart 1 – Types of Trusts. Type of trust – It is important that you complete this section correctly because we use this information to determine the correct rate of tax. To identify the correct type of trust, see Chart 1 – Types of Trusts and Code number for the type of trust. This information is mandatory. If this information is not entered, the process of the T3 return may be delayed. Note If you enter inter vivos code 300, for other trust, you must specify the type of trust on the “Other inter vivos trust (specify)” line. Date of death (if the trust is a testamentary trust) or Date trust was created (if the trust is an inter vivos trust) – Provide this information on each return. Social Insurance Number of the deceased – If the trust is a testamentary trust, enter the Social Insurance Number of the deceased. The Social Insurance Number of the deceased individual is mandatory for graduated rate estates. Non‑profit organization – If the non‑profit organization is incorporated, enter the business number and program account. Reporting foreign income and property If the trust is resident in Canada or deemed to be resident in Canada, you have to report its income from all sources, both inside and outside Canada. Report in Canadian dollars foreign income and other foreign currency amounts (such as expenses and foreign taxes paid). If a resident trust or a deemed resident trust conducts business with a foreign affiliate, or owns specified foreign property in excess of CAN$100,000, you may have to file special returns. For more information, call 1-800-959-8281. Specified foreign property includes all of the following: funds or intangible property (patents, copyrights, etc.) situated, deposited or held outside Canada tangible property situated outside Canada a share of the capital stock of a non-resident corporation held by the taxpayer or by an agent on behalf of the taxpayer an interest in a non-resident trust that was acquired for consideration, other than an interest in a non-resident trust that is a foreign affiliate for the purposes of section 233.4 of the Act shares of corporations resident in Canada held by you for you outside Canada an interest in a partnership that holds a specified foreign property unless the partnership is required to file Form T1135 Foreign Income Verification Statement an interest in, or right with respect to, an entity that is a non-resident a property that is convertible into, exchangeable for, or confers a right to acquire a property that is specified foreign property a debt owed by a non-resident, including government and corporate bonds, debentures, mortgages, and notes receivable an interest in a foreign insurance policy precious metals, gold certificates, and futures contracts held outside Canada Specified foreign property does not include any of the following: a property used or held exclusively in carrying on an active business a share of the capital stock or indebtedness of a foreign affiliate an interest in a trust described in paragraph (a) or (b) of the definition of “exempt trust” in subsection 233.2(1) a personal‑use property as defined in section 54 an interest in, or a right to acquire, any of the above-noted excluded foreign property You can also find specific information on the following forms: T1134, Information Return Relating to Controlled and Not-Controlled Foreign Affiliates T1135, Foreign Income Verification Statement T1141, Information Return in Respect of Contributions to Non-Resident Trusts, Arrangements or Entities T1142, Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust You may be able to claim a foreign tax credit when you calculate your federal, provincial or territorial taxes. For more information, see Form T3FFT, T3 Federal Foreign Tax Credits, and Form T3 PFT, T3 Provincial or Territorial Foreign Tax Credit. Other required information Answer all the questions on page 2 of the T3 Return. The following information will help you answer some of the questions. Question 1 – If the trust is not a trust to which section 94 applies, do not answer this question. Where a deemed resident trust has received property from multiple contributors, it may file an election to have certain property that was not contributed to the trust by the resident contributors and/or, where there is a resident beneficiary, the connected contributors, be part of a separate trust that is not subject to section 94 (the non-resident portion trust). This election is non-revocable. If the trust is an electing trust, indicate what year the trust became an electing trust. For the year indicated, include a schedule showing all of the trust’s assets and specifying allocation of assets between the resident portion trust and the non-resident portion trust. Include schedules for subsequent years only if changes occur. CRA considers the electing trust and its non-resident portion trust to be two separate trusts. If the non-resident portion trust has any Canadian filing obligations under Part I or Part XIII as a non-resident trust, it must report those amounts as a separate trust under a separate trust number from the deemed resident trust. Question 2 – The terms of the will, trust document, or court order determine the requirement to allocate income. The trust may be required to pay out its income to a beneficiary. In this case, the income cannot be retained and taxed in the trust, unless the trust has made a designation under subsections 104(13.1) or 104(13.2). For more information, see Income to be taxed in the trust. Question 3 – If you answer yes, send us a statement giving all required information. For more information, see Distribution of property to beneficiaries. Question 4 – If you answer yes, send us a statement giving all required information only if the trust is a personal trust, spousal or common law partner trust, joint spousal or common law partner trust, or alter ego trust. Question 5 – This question relates to spousal and similar trusts under subsection 104(13.4) and for purposes of this question, a lifetime beneficiary under the trust is: the last surviving beneficiary (either the settlor, or the spouse or common-law partner, as the case may be) of an alter ego trust, a joint spousal or common-law partner trust. an individual (other than a trust) who transferred property in circumstances described in subparagraph 73(1.02(b)(ii) or subsection 107.4(1). Question 6 – For a discussion as to the meaning of the term “at arm’s length”, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length. Question 7 – If you answer yes, provide the date and send us a statement showing the changes. For information on the disposition of an income interest in a trust, see archived Income Tax Folio S6-F2-C1, Disposition of an Income Interest in a Trust. Question 8 – A yes response to this question only applies to personal trusts. Question 9 – See Contribution of property in the definitions section. Question 10 – A yes response to this question only applies to a mutual fund trust. Question 11 – If a trust used International Financial Reporting Standards (IFRS) when it prepared its financial statements, answer yes. IFRS is the collection of financial reporting standards developed by the International Accounting Standards Board (IASB). For more information, go to International Financial Reporting Standards (IFRS). Question 12 – If you answer yes, provide the date of the loss restriction event. For more information about a loss restriction event, see Loss trading – Rules for trusts. Questions 13 and 14 Questions 13 and 14 relate to the new requirement to file beneficial ownership information, see “What’s new for 2023”. As noted, a trust that is required to file a T3 return, other than a listed trust described, generally must report beneficial ownership information on Schedule 15. Providing the information required on page 1 and the top of page 2 of the return will identify many listed trusts described. Questions 13 and 14 identify two situations where the trust may be a listed trust and therefore is not required to complete a Schedule 15. Question 13 – This is a new question regarding the reporting requirements for trusts that come into effect for tax years ending on or after December 31, 2023. The assets listed in paragraph 150 (1.2)(b) are: money; (see Note) certain government debt obligations (described in paragraph (a) of the definition “fully exempt interest” in subsection 212(3)); a debt obligation described in paragraph (a) of the definition “fully exempt interest” in subsection 212(3); a share, debt obligation or right listed on a designated stock exchange; a share of the capital stock of a mutual fund corporation; a unit of a mutual fund trust; an interest in a related segregated fund (within the meaning assigned by paragraph 138.1(1)(a)); and an interest as a beneficiary under a trust, all the units of which are listed on a designated stock exchange. Note “Money” does not include collectible gold or silver coins, or gold or silver bars. Therefore, trust that is in possession of either a collectible gold or silver coin, or a gold or silver bar will not be able to satisfy the exception in paragraph 150(1.2)(b). If you answered “yes” to this question, you do not need to file a Schedule 15 with your tax return to disclose beneficial ownership information of the trust. Question 14 – This is a new question regarding the reporting requirements for trusts that come into effect for tax years ending on or after December 31, 2023. This provides an exception for a lawyer’s general trust account but not for specific client accounts. If you answered “yes” to this question you do not need to file a Schedule 15 with your tax return to disclose beneficial information of the trust. What to file - Instructions for bare trusts Identify the type of trust as Bare Trust by selecting “code 307, Bare Trust” and provide the trust creation date in the appropriate field. If this is the first year of filing a T3 Return, send us a copy of the trust document, unless such information or document has been previously submitted. See “Applying for a trust account number” for more information on what documents may be required. Where applicable, provide a response and information related to whether the trust is filing its final return (and if so, provide the date on which the trust has been terminated or wound up in the year). Provide a response and information related to applicable questions on page two of the T3 return. Name of trust – If there is a written trust deed, or other agreement governing the bare trust and the document identifies a name for the bare trust, enter it in the name field. When a bare trust has not been named, follow these guidelines: List the legal name of the beneficial owner(s). For example, the full corporate name identified in the articles of incorporation for businesses, or the first and last names for an individuals - with the word “trust” at the end The name field is limited to 60 characters, if the name(s) exceeds the 60 character limit, use 54 characters for the names, followed by a space and the word “trust” at the end of the field. Complete the last page including the parts “Name and address of person or company who prepared this return” and “Certification”. For bare trusts, the remaining parts of the T3 Return can be left blank. All income from the trust property for a taxation year should be reported on the beneficial owner’s return of income. Complete all parts of Schedule 15. See “Schedule 15 – Beneficial Ownership Information of a Trust” for the information to be entered on Schedule 15.
Step 2 – Calculating total income: Lines 1 to 12
Line 1 – Taxable capital gains Calculate the taxable capital gains and allowable capital losses of the trust on Schedule 1. If the amount on line 24 of Schedule 1 is a taxable capital gain, enter it on line 1. If the amount on line 24 of Schedule 1 is a net capital loss, do not enter it on line 1. You cannot deduct the net capital loss from other income of the trust in the year, or allocate it to the beneficiaries (except as described under Exceptions and limits to income allocations). You can only use it to reduce the trust's taxable capital gains of other years. For more information, see Line 34 – Net capital losses of other years. Tax tip In the first tax year of a GRE, the legal representative can elect to apply any net capital loss against income on the deceased's final return. For more information, see Graduated rate estate elections (losses). If a trust sells capital property that is qualified farm or fishing property, or qualified small business corporation shares and realizes a gain, the gain may qualify for the capital gains deduction to be claimed by a beneficiary of the trust. For more information, see Line 921 – Taxable capital gains. For more information, see: Guide T4037, Capital Gains Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income Line 2 – Pension income ▲ Enter amounts that the trust received from any of the following: registered pension plans retirement compensation arrangements deferred profit sharing plans superannuation plans foreign retirement arrangements When an amount is considered to have been distributed to an estate from a foreign retirement arrangement according to the laws of the country where the arrangement was established, the payment is also deemed received by the estate for tax purposes in Canada. In this case, you must include the amount, in Canadian funds, on line 2. Line 3 – Total of actual amount of dividends from taxable Canadian corporations ▲ Enter the total of the actual amount of dividends received from taxable Canadian corporations from line 3 of Schedule 8. On line 3A, enter the actual amount of dividends other than eligible dividends from line 1 of Schedule 8. Send to the CRA all information slips received. For more information, see Lines 1 to 3 – Dividends from taxable Canadian corporations. Line 4 – Foreign investment income ▲ Enter all interest and other investment income from foreign sources from line 6 of Schedule 8. For more information, see the tax tip below and Lines 4 to 6 – Foreign investment income. Line 5 – Other investment income ▲ Enter the amount from line 12 of Schedule 8. Include all interest and investment income from Canadian sources except dividends from taxable Canadian corporations reported on line 3. Send to the CRA all information slips received. For more information, see Lines 7 to 12 – Other investment income. Tax tip In the first year of a testamentary trust, any interest income that has accrued to the person's date of death is reported on the deceased's final T1 return. Any interest income accrued after the person's date of death is reported on the T3 return.
Schedule 1 – Dispositions of Capital Property
If the trust disposed of capital property in the year, see Guide T4037, Capital Gains, for the general rules regarding capital gains and losses. We explain the rules that relate to trusts in this section. Complete Schedule 1 and file it with the T3 return if the trust had dispositions of capital property during the year. Do not include any deemed dispositions that are reported on Form T1055, Summary of Deemed Dispositions (2002 and later tax years). Transfer any taxable capital gains from line 24 of Schedule 1 to line 1 of the return. A disposition of capital property includes any of the following: the sale of property the sale of the principal residence the distribution or exchange of property the making of a gift a redemption of shares a debt settlement a theft the destruction of property Note We do not consider a disposition to have occurred if two corporations or a parent corporation and its subsidiary have amalgamated and there is no consideration for the redemption of shares. For more information, call 1-800-959-8281. Certain gifts – zero inclusion rate Generally, a trust’s taxable capital gain from the disposition of capital property is 50% of the trust’s capital gain with certain exceptions. If the trust donated certain types of capital property to a registered charity or other qualified donee, the trust may not have to include in its income any amount of capital gain realized on such gifts. The trust may be entitled to an inclusion rate of zero on any capital gain realized on such gifts. Donated capital property, where an inclusion rate of zero may apply, includes all of the following: a share, debt obligation, or right listed on a designated stock exchange a share of the capital stock of a mutual fund corporation a unit of a mutual fund trust an interest in a related segregated fund trust a prescribed debt obligation certified ecologically sensitive land (including a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a real servitude, or a personal servitude where certain conditions are met) gifted to certain qualified donees other than private foundations. For more information, see "Gifts of ecologically sensitive land" in Pamphlet P113, Gifts and Income Tax, and Income Tax Folio S7-F1-C1, Split-receipting and Deemed Fair Market Value. If there is no advantage in respect of the gift, the full amount of the capital gain realized on the gift is eligible for an inclusion rate of zero. However, if there is an advantage, only part of the capital gain is eligible for the inclusion rate of zero. The remainder is subject to an inclusion rate of 50%. The zero inclusion rate may also apply to a gift of a capital property included in the previous list if the gift is made to a qualified donee by a GRE (or by a former GRE). For such gifts by a GRE (or former GRE) the donated property must be property that was acquired by the estate on and as a consequence of the death of the individual (or property that was substituted for such property). In such circumstances, the zero inclusion rate will apply to a capital gain realized on the deemed disposition of the property immediately before the individual’s death and reported on the individual’s final return as well as to a capital gain realized by the estate on the transfer of the property to the qualified donee. For more information, see T3 Schedule 1A, Capital Gains on Gifts of Certain Capital Property, section "Capital gains realized on gifts of certain capital property" in Pamphlet P113, Gifts and Income Tax, and Income Tax Folio S7-F1-C1, Split-receipting and Deemed Fair Market Value. Distribution of property to beneficiaries If a personal trust distributes property to a beneficiary (to settle in whole or in part the beneficiary's capital interest in the trust), send us a statement that includes all of the following information about the distributed property: the name and address of the recipient or recipients a description of the property the fair market value (FMV) on the day it is distributed the cost amount on the day it is distributed For information regarding the distribution of property to a non-resident beneficiary, see Capital dispositions – Rules for trusts. Graduated rate estate elections (losses) If you are a legal representative administering the graduated rate estate of a deceased person, you may: elect under 164(6) to treat certain capital losses and terminal losses, arising in the first tax year of the deceased person’s graduated rate estate, as losses of the deceased person for that person’s final tax year elect under 164(6.1) to carryback certain amounts relating to employee stock options, arising in the first tax year of the deceased person’s graduated rate estate, to be deducted in computing the deceased person’s income for that person’s final tax year These elections apply only to the first tax year of a deceased person’s estate. The elections do not affect the return of the deceased person for any year before the year of death. Due date of election and amended final T1 return In addition to filing the election you are also required to file an amended final T1 return of the deceased person to give effect to the rules. The application of the losses to the deceased person’s final tax year cannot be processed without this corresponding amended final T1 return. Both the election and amended final T1 return must be filed by the later of: the filing due date of the deceased person’s final T1 return that the legal representative is required to file or has elected to file the filing due date for the estate’s T3 return for its first tax year When filing the amended T1 return, you must clearly identify the amended final T1 return of the deceased person as a 164(6) election or a 164(6.1) election. 164(6) election Generally, you can make this election for: all or any portion of the capital loss (to the extent the graduated rate estate’s capital losses exceed its capital gains) resulting from the disposition of the graduated rate estate’s capital property as reported on Schedule 1 the amount of losses available to be carried back to the final T1 Individual return is the amount of losses before the inclusion rate is applied all or any portion of the terminal loss (not exceeding the total of the graduated rate estate’s non-capital loss and farm loss before the election) resulting from the disposition of all of the depreciable property of a prescribed class of the graduated rate estate If you are making an election under 164(6) for the graduated rate estate, send us the following: a letter indicating that you are making an election under 164(6) and providing all of the following information: the amount of the capital loss you elect to be a capital loss of the deceased person the amount of the terminal loss you elect to be deductible in computing the income of the deceased person a schedule with details of the capital loss a schedule with the details of the terminal loss and a statement of the amounts that would have been the non-capital loss and the farm loss of the estate for its first tax year had the election not been made The graduated rate estate cannot claim a loss that you have elected to transfer to the deceased person's final T1 return. However, you have to report the dispositions of the estate property on Schedule 1. If the total is a loss, enter the amount elected under subsection 164(6) on line 20. 164(6.1) election This election applies to certain unexercised employee security options held by a person, at the time of death, in respect of which a benefit has been included in the person’s income under paragraph 7(1)I for the tax year in which the person died. Generally, where the value of those unexercised options subsequently declines and the options expired or were exercised or disposed of in the first year of the estate, the deceased’s legal representative may elect to treat an amount determined under 164(6.1) as a loss of the deceased from employment for the year in which the person died. You can only make this election for employee security options that expired, or that you exercised, or disposed of in the first tax year of the graduated rate estate. If you are making an election under 164(6.1) for the graduated rate estate, send us the following: a letter indicating that you are making an election under 164(6.1) and providing all of the following information: the amount of the benefit included in the deceased person’s income for the tax year in which the person died the amount, if any, by which the value of the right immediately before it was exercised or disposed of exceeds the amount, if any, the deceased person paid to acquire the right the amount of the loss you elect to be a loss of the deceased taxpayer from employment in the year in which the taxpayer died Use the following calculation to determine the amount that can be carried back to the deceased person's final T1 return: A – (B + C) where: A = the deemed benefit for the option included on the deceased person's final return B = the amount by which the value of the option immediately before it expired, was exercised, or disposed of, is more than the amount the deceased person paid to acquire it C = the amount by which A is more than B, if a security option deduction for this option was claimed on the deceased person's final return, multiplied by 50% If you make this election, reduce the trust's adjusted cost base of the option by A minus B, without considering C.
Capital dispositions – Rules for trusts
Affiliated persons A trust is considered to be affiliated with its majority interest beneficiary and any person who is affiliated with such a beneficiary. As a result, the rules that apply to affiliated persons may apply to a trust and its beneficiaries, settlors, or contributors. For more information, call 1-800-959-8281. Distribution to non-resident beneficiary A trust that distributes property to a non-resident beneficiary in satisfaction of all or part of the beneficiary's capital interest in the trust, is deemed to have disposed of such property for proceeds equal to the property's fair market value (FMV) at that time. This rule does not apply to property that meets any of the following conditions: a share of the capital stock of a non-resident owned investment corporation real or immovable property situated in Canada, a Canadian resource property or a Canadian timber resource property capital property used in, Class 14.1 (eligible capital property before January 1, 2017) in respect of or property described in the inventory of, a business carried on by the taxpayer through a permanent establishment in Canada at the particular time an excluded right or interest of the taxpayer And the conditions in subsection 107(2) are met and subsection 107(4.1) is not applicable. Trust emigration A trust that ceases to be resident in Canada is deemed to have disposed of all property, including certain taxable Canadian property, for proceeds equal to the property's FMV at that time, and reacquired the property, at the same value, immediately thereafter. These rules do not apply to any of the following properties, among others: real or immovable property situated in Canada, a Canadian resource property, or a Canadian timber resource property capital property used in, Class 14.1 (eligible capital property before January 1, 2017) in respect of or property described in the inventory of, a business carried on by the taxpayer through a permanent establishment in Canada at the particular time pension or other similar rights or interests payments out of an AgriInvest Fund 2 The trust or beneficiary can defer paying tax resulting from the deemed disposition by providing acceptable security. To arrange security, call 1-800-959-8281. Trust emigration - information reporting A trust that ceases to be resident in Canada, and that owns property with a total FMV of more than $25,000 at that time, has to file Form T1161, List of Properties by an Emigrant of Canada, with its T3 return for that year, listing each property the trust owned at that time. For the purposes of determining whether Form T1161 is required, property does not include: money that is legal tender in Canada and all deposits of such money pension or other similar rights or interests any item of personal-use property, with a FMV of less than $10,000 at the time the trust ceased to be a resident in Canada Canadian cultural property For information on dispositions of Canadian cultural property, see "Selling or donating certified Canadian cultural property" in Guide T4037, Capital Gains, archived Interpretation Bulletin IT-407, Dispositions of Cultural Property to Designated Canadian Institutions, Pamphlet P113, Gifts and Income Tax, and Income Tax Folio S7-F1-C1, Split-receipting and Deemed Fair Market Value. Proceeds of disposition This is usually the amount that the trust received or will receive for its property. In most cases, it refers to the sale price of the property. In certain situations, the proceeds of disposition are set by rules in the Act. Personal trust – When this kind of trust distributes property to a beneficiary, and there is a resulting disposition of all or part of the beneficiary's capital interest in the trust, we generally consider the trust to have received proceeds of disposition equal to the "cost amount" of the property. The cost amount of a capital property (other than a depreciable property) is its Adjusted cost base. The cost amount of a depreciable property is calculated as follows: If the property was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of the class before the distribution If there is more than one property in the class, the cost amount of each property is as follows: Capital cost of the property ÷ Capital cost of all properties in the class that have not been previously disposed of × UCC of the class = Cost amount of the property Where a personal (or prescribed) trust distributes property to a beneficiary to settle all or part of the beneficiary's capital interest in the trust, the trust can elect under subsection 107(2.001) of the Act to not have the trust's proceeds of disposition equal to the cost amount of the property. A subsection 107(2.001) trust election is applicable to distributions made after October 1, 1996 when: the trust was resident in Canada when it distributed the property; the property is taxable Canadian property; the property is property of a business carried on by the trust through a permanent establishment in Canada. This includes capital property and property described in the inventory of the business, immediately before the time of distribution. To elect under subsection 107(2.001), the trust must send us a letter for the tax year in which the property was distributed. The letter should include all of the following information: a declaration to elect under subsection 107(2.001) name of the trust trust account number type of trust trust's tax year-end date residency status of the trust, (resident trust or non-resident trust) if applicable, the date the trust became a resident of Canada in the year if applicable, the date the trust became a non-resident of Canada in the year name, address and signature of trustee making the election If you file an election, we consider the trust, if resident in Canada, to have received proceeds of disposition equal to fair market value (FMV) of the property at the time of distribution. Effective for distribution of property after December 20, 2002, a personal (or prescribed) trust is deemed to have disposed of property for proceeds equal to the property's FMV at the time of the distribution if both of the following conditions are met: at a particular time before December 21, 2002, there was a qualifying disposition (within the meaning assigned by subsection 107.4(1)) of the property, or of other property for which the property is substituted, by a particular partnership or a particular corporation, as the case may be, to the trust the beneficiary is neither the particular partnership nor the particular corporation Post-1971 spousal or common-law partner trust – When this kind of trust, whose beneficiary spouse or common-law partner is still alive, distributes property such as capital property, resource property, or land inventory to a person who is not the beneficiary spouse or common-law partner, we consider the trust to have received proceeds of disposition equal to the property's FMV. This also applies to both of the following: a joint spousal or common-law partner trust that distributes property to a person who is not the settlor, beneficiary spouse or common-law partner and the settlor, beneficiary spouse or common-law partner is still alive an alter ego trust that distributes property to a person who is not the settlor and the settlor is still alive Trust other than a personal trust – When this kind of trust distributes property to a beneficiary and there is a resulting disposition of all or part of the beneficiary's capital interest in the trust, we consider the trust to have received proceeds of disposition equal to the property's FMV. For more information, see Chapter 2 in Guide T4037, Capital Gains. Adjusted cost base (ACB) This is usually the cost of the property plus expenses incurred to obtain it. The adjusted cost base can differ from the original cost if changes have been made to the property between the time it was acquired and the time it was sold. For more information, see Guide T4037, Capital Gains, and archived Interpretation Bulletin IT-456, Capital Property – Some Adjustments to Cost Base, and its Special Release. Generally effective after February 27, 2004, the cost of a capital interest in a trust that is not held by the taxpayer as capital property is deemed to be equal to the cost amount used for inventory valuation purposes less the total of all returns of capital and non-taxable capital gains payable to the taxpayer in respect of the interest, prior to the disposition. At any particular time, inventory valuation is deemed to be the FMV of the capital interest plus the sum of all returns of capital and non-taxable capital gains payable before that time. Beneficial interest in a trust – A trust may receive a T3 slip with an amount showing in box 42. Use this amount to determine the ACB of your interest in that trust. Reduce the cost of your interest by the total of the positive amounts shown in box 42 of the T3 slips received from the trust for all tax years after 2003. Also reduce it by all amounts (other than amounts received as proceeds of disposition or as a distribution of income of the trust) received from the trust before 2004. If the amount in box 42 is in brackets, it will result in an increase in the ACB. You may want to contact the trustee of the trust to determine if there are any other adjustments required in calculating the ACB of your interest. For more information on how to account for box 42 amounts, see Information Sheet RC4169, Tax Treatment of Mutual Funds for Individuals. Note If your ACB is reduced to an amount below zero at any time in the tax year, we consider a deemed disposition to have occurred. The negative amount is deemed to be a capital gain. Your ACB is then reset to zero. For more information, see Line 3 – Publicly traded shares, mutual fund units, and other shares. Property acquired before 1972 Before 1972, capital gains were not taxed. If the trust sold property acquired before 1972, you have to use special rules when calculating the capital gain or capital loss to remove any capital gains accrued before 1972. These rules are found on Form T1105, Supplementary Schedule for Dispositions of Capital Property Acquired Before 1972. Use Form T1105 to calculate the gain or loss from selling property the trust owned before 1972. Outlays and expenses These are amounts incurred to sell a capital property such as finder's fees, commissions, broker's fees, legal fees, and advertising costs. You can deduct outlays and expenses from the proceeds of disposition when calculating the capital gain or capital loss. In the case of depreciable property sold at a loss, these outlays and expenses reduce the proceeds from the sale to be credited to the class. Do not claim them as deductions from the trust's income. Note Outlays and expenses made or incurred in respect of deemed dispositions cannot be claimed. Lines 1 and 2 – Qualified small business corporation shares (QSBCS) and qualified farm or fishing property (QFFP) Use these sections if you are filing a return for a personal trust reporting a capital gain or loss from the disposition of qualified small business corporation shares or qualified farm or fishing property. For more information, see Guide T4037, Capital Gains. Do not report a loss the trust incurred in disposing of shares of, or debts owing by, a small business corporation in an arm's length transaction. For information on these types of losses, see Line 18 – Allowable business investment losses (ABIL). Capital gains from the disposition of qualified small business corporation shares, or qualified farm or fishing property may qualify for the capital gains deduction where the personal trust is allocating and designating the eligible capital gains to a beneficiary. Complete Schedules 3 and 4, and see How to complete the T3 slip. A share in a small business corporation is considered to be a qualified small business corporation share if all of the following conditions are met: at the time of disposition, it was a share of the capital stock of a small business corporation and was owned by the personal trust, or a partnership related to the personal trust throughout the 24 months before the disposition, only the personal trust, or a person or a partnership related to the personal trust, owned the share throughout that part of the 24 months immediately before the disposition, while the personal trust or person or partnership related to the personal trust owned the share, it was the share of a Canadian-controlled private corporation (CCPC), and more than 50% of the fair market value of the assets of that corporation: was used mainly in an active business carried on primarily in Canada by the CCPC, or by a related corporation was certain shares or debts of connected corporations was a combination of the two For the purpose of a qualified small business corporation share, a person or a partnership is related to a personal trust if it meets any of the following conditions: the person or partnership is a beneficiary of the personal trust the personal trust is a member of the partnership the person is a member of a partnership that is a member of another partnership and is deemed to be a member of the second partnership when the personal trust disposes of the shares, all the beneficiaries are related to the person from whom the personal trust acquired the shares For more information, see "Qualified small business corporation shares" in Guide T4037, Capital Gains. Qualified farm or fishing property of a personal trust includes any of the following property the personal trust owns: a share of the capital stock of a family farm or fishing corporation an interest in a family farm or fishing partnership real or immovable property, or a fishing vessel, or property included in Class 14.1 used in carrying on a farming or fishing business in Canada by either of the following: an individual beneficiary (who is entitled to receive directly from the trust any income or capital of the trust), or that beneficiary's spouse or common-law partner, child, or parent a family farm or fishing corporation, or a family farm or fishing partnership in which either an individual beneficiary, or the beneficiary's spouse or common-law partner, child, or parent own a share in the corporation or an interest in the partnership Note In addition, certain conditions must be met for property to be considered to have been used in the course of carrying on a farming or fishing business in Canada. For more information, see Chapter 5 – Eligible Capital Expenditures” and “Chapter 7 – Capital Gains” in Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income. Line 3 – Publicly traded shares, mutual fund units, and other shares Use this section to report a capital gain or loss when the trust sells mutual fund units, shares, or securities that are not described in any other section of Schedule 1. If you are deemed to have a capital gain as a result of a negative adjusted cost base (ACB), use this line to report the deemed gain. Complete the first two columns with the number of shares and the name of the fund or corporation. Enter the ACB in brackets in column 3 and the capital gain in column 5. Line 4 – Bonds, debentures, promissory notes, crypto assets, and other similar properties Use this section to report capital gains or losses when the trust sells these types of properties. The trust may receive Form T5008, Statement of Securities Transactions, or an account statement, showing details of the sale. Also use this section to report capital gains or losses when the trust sells options. For information on disposing of options to sell or buy shares, see archived Interpretation Bulletin IT-96, Options Granted by Corporations to Acquire Shares, Bonds, or Debentures and by Trusts to Acquire Trust Units, and archived Interpretation Bulletin IT-479, Transactions in Securities, and its Special Release. Line 5 – Real estate, depreciable property, and other properties Use this section if the trust sold real estate or depreciable property. The trust cannot have a capital loss on the disposition of depreciable property. However, it can have a terminal loss under the capital cost allowance rules. For more information, see "Real estate, depreciable property and other properties" in Guide T4037, Capital Gains. Note See Property flipping on the next page. Line 6 – Personal-use property Use this section if the trust disposed of property used primarily for the personal use or enjoyment of a beneficiary under the trust, or any person related to the beneficiary. Personal-use property includes personal residences, cottages, automobiles, and other personal and household effects. When you dispose of personal-use property, use both of the following rules to calculate the capital gain or loss: if the ACB of the property is less than $1,000, the ACB is considered to be $1,000 if the proceeds of disposition of the property are less than $1,000, the proceeds are considered to be $1,000 If the trust disposed of personal-use property that has an ACB or proceeds of disposition of more than $1,000, there may be a capital gain or loss. Report the capital gain on Schedule 1. If there is a capital loss, you usually cannot deduct the loss in the year. For more information, see "Personal-use property" in Guide T4037, Capital Gains. Calculate the capital gain or loss using the actual ACB and proceeds of disposition if the trust, or a person with whom the trust does not deal at arm's length, meets all of the following conditions: personal-use property, including listed personal property (LPP), was acquired after February 27, 2000 circumstances suggest that acquisition of the property relates to an arrangement, plan, or scheme promoted by another person or partnership the property will be donated to a qualified donee Note See Property flipping on the next page. Principal residence If a personal trust acquires a principal residence, it may be exempt from tax on the capital gain on the disposition or deemed disposition of that residence. To be exempt, the residence has to qualify and be designated by the trust as its principal residence. Before December 31, 2016, a residence could usually be designated if a specified beneficiary, or that beneficiary’s spouse or common law partner, former spouse or common law partner, or child, lived in it. A specified beneficiary is one who had a beneficial interest in the trust, and who ordinarily lived, or had a spouse or common law partner, former spouse or common law partner, or child, who lived in the residence. The types of trusts that are eligible to designate a property as a principal residence are limited to a trust that is: an alter ego trust, spousal or common law partner trust, joint spousal or common law partner trust, or certain trusts for the exclusive benefit of the settlor during the settlor’s lifetime (collectively referred to as “life time benefit trusts”), where the specified beneficiary of the trust for each tax year for which the trust is designating the property as its principal residence, is the settlor, spouse or common law partner or former spouse or common law partner of the settlor (as the case may be) a qualified disability trust, so long as, the “electing beneficiary” of the trust for the year is: resident in Canada during the year the specified beneficiary of the trust during the year a spouse, common law partner, former spouse or common law partner or child of the settlor a trust, the specified beneficiary of which for the year is an individual: who has not reached 18 years of age before the end of the year who is resident in Canada during the year one of whose parents is a settlor of the trust and either of the following conditions is met: neither the mother or father of the individual is alive at the beginning of the year the trust arose before the beginning of the year as a result of the death of either the mother or father of the individual a trust, the specified beneficiary of which for the year is a “qualifying individual” in respect of the trust under which no person other than the qualifying individual (see the definition of “qualifying individual” in “Definitions”) in respect of the trust under which no person other than the qualifying individual (beneficiary), may receive or otherwise obtain the use of, during the beneficiary’s lifetime, any of the income or capital of the trust. The trustees must be required to consider the needs of the beneficiary (including the comfort, care and maintenance of the beneficiary) in determining whether to pay, or not to pay, an amount to the beneficiary. Special transitional rules apply to make sure a trust that owned the property before 2017, which no longer qualifies to designate the property as its principal residence as a result of these new requirements, may continue to benefit from the principal residence deduction for the gains accrued until December 31, 2016, where the trust meets all of the following conditions: was otherwise eligible to claim a principal residence deduction for a tax year that begins before 2017 owned the property, jointly with another person or otherwise, at the end of 2016, and owns it continuously from January 1, 2017 until the disposition disposed of the property after 2016 A personal trust can only designate one property as a principal residence. Also, the specified beneficiary cannot designate any other property as a principal residence. Make the trust’s designation on Form T1079, Designation of a Property as a Principal Residence by a Personal Trust. You have to file this form with the trust’s T3 return for the year in which the disposition or deemed disposition occurs. When a personal trust’s principal residence is distributed to a beneficiary, the trust can elect to have a deemed disposition of the principal residence at its fair market value (FMV). When you make this election on the trust’s return for the year of distribution, you may be able to claim the principal residence exemption to reduce the gain, if any, from the trust’s deemed disposition. The beneficiary will then acquire the property at its FMV. For more information, see Form T1079 and Income Tax Folio S1-F3-C2, Principal Residence. Property Flipping For dispositions after 2022, if a trust owned a housing unit (including a rental property) or held a right to acquire a housing unit located in Canada for less than 365 consecutive days before the disposition, the property is generally considered to be a flipped property, unless it was already considered to be inventory of the trust. The resulting gain on the disposition of a flipped property is taxable as business income and not as a capital gain. Therefore, the trust cannot use the principal residence exemption. Very generally, exceptions to the flipped property rule may apply in certain situations where the disposition occurs due to, or in anticipation of, certain life events. If the property is a flipped property, do not report the gain on Schedule 1, but rather report the income on Form T2125, Statement of Business and Professional Activities. If the property is not a flipped property, and the trust has a capital gain or loss, use Schedule 1 to report the disposition. For more information about property flipping and the life event exceptions, go to Residential Property Flipping Rule or see T4037 – Capital Gains Guide. Lines 7 to 9 – Listed personal property Use this section to report dispositions of listed personal property (LPP), including all or part of any interest in, or any right to, all of the following properties: prints, etchings, drawings, paintings, sculptures, or other similar works of art jewellery rare folios, rare manuscripts, and rare books stamps coins Because an LPP is a type of personal-use property, the capital gain or loss on the sale of the LPP item (or set of items) is calculated the same way as for personal-use property. For more information, see Line 6 – Personal-use property. Line 10 – T3 information slips – Capital gains (or losses) Use this line to report the following amounts from all T3 slips received for the tax year: capital gains from box 21 on a T3 slip insurance segregated fund net capital losses from box 37 of a T3 slip Note If the T3 slip has an amount in box 42, use the amount to calculate the adjusted cost base of the property. Follow the instructions on the back of the T3 slip. Do this for every year you own the property. For more information, see Information Sheet RC4169, Tax Treatment of Mutual Funds for Individuals. If a T3 slip identifies amounts for "qualified small business corporation shares" or "qualified farm or fishing property" in its footnote area, do not report these amounts on line 10. Enter them on line 1 or 2, whichever is applicable. Enter them on line 1 or 2, whichever is applicable. You can view your T3 information slip online in My Account for individuals. Line 11 – T5, T4PS, and T5013 information slips – Capital gains (or losses) Information slips Use this line to report all of the following amounts received in the tax year: capital gains dividends from box 18 of a T5 slip capital gains (or losses) from box 34 of a T4PS slip capital gains (or losses) from box 30 of a T5013 slip If a slip identifies amounts for “qualified small business corporation shares” or “qualified farm or fishing property” in its footnote, details, or other information area, do not report these amounts on line 11. Enter them on line 1 or 2, whichever is applicable. You can view your T5, and other tax information slips online in My Account for individuals. Line 13 – Capital losses from a reduction in business investment loss Report a capital loss from a reduction in business investment loss on line 13. For more information, see Reduction in business investment loss. Line 15 – Capital gains (losses) from reserves If the trust sold capital property, but did not receive the full payment at the time of the sale, you can claim a reserve for the unpaid amount. Generally, the minimum amount of the trust's capital gain you have to report each year is 20% of the taxable capital gain. If you claimed a reserve in 2022, you have to bring it back into the trust's income in 2023. If any of the proceeds are to be paid after the end of the year, you may be able to claim a new reserve. If you are claiming a reserve on the trust's return, you have to complete Schedule 2. For more information about reserves, see Guide T4037, Capital Gains. If the trust allocates and designates the taxable capital gain to one or more beneficiaries under the trust, the capital gain must be reported on a T3 slip issued to the beneficiary. For more information, see the definitions of “Allocate, allocation”, and “Designate, designation”, “Line 921 – Taxable capital gains” and “Box 21 – Capital gains”. Where the capital gains being included in a personal trust’s income result from reserves related to dispositions of QSBCS or QFFP and the trust allocates the taxable capital gains eligible for the capital gains deduction to one or more beneficiaries, the trust must designate a portion of the trust’s eligible taxable capital gains to the beneficiary for the beneficiary’s capital gains deduction. For more information, see “Line 930 – Taxable capital gains eligible for deduction” and “Box 30 – Capital gains eligible for deduction”. Line 17 – Capital gains on gifts of certain capital property eligible for the 0% inclusion rate Enter on this line the amount from line 3 of Schedule 1A. On line 19, enter the capital gains on gifts of capital property included in lines 1 and 2 of Schedule 1A, excluding amounts reported on line 17. Line 20 – Total capital losses transferred under subsection 164(6) of the Act Enter on this line the amount of capital losses you transferred under subsection 164(6) to the deceased person's final T1 return. For more information, see Graduated rate estate elections (losses). Line 23 – Non-qualified investments for TFSA, RRSP, RRIF, RDSP, RESP, and FHSA trusts, or disposition of interest in a partnership reported under subsection 100(1.1) of the Act Use this section if the tax-free savings account (TFSA) trust, registered retirement savings plan (RRSP) trust, registered retirement income funds (RRIF) trust, registered disability savings plan (RDSP) trust, registered education savings plan (RESP), or first home savings account (FHSA) trust held non-qualified investments during the tax year. Use this section if, as part of any transactions or events, the trust disposed of an interest in a partnership and the interest in the partnership is acquired by a tax-exempt entity, non-residents, certain persons and certain partnerships; see subsection 100(1) of the Act. Line 24 – Total taxable capital gains (or net capital losses) Transfer the total taxable capital gains to line 1 of the trust's return. If the amount on this line is negative, and is not used to reduce your deemed dispositions on Form T1055, Summary of Deemed Dispositions (2002 and later tax years), you have a net capital loss. Do not enter it on line 1 of the return. For more information, see Form T3A, Request for Loss Carryback by a Trust. Note If the amount on line 24 is a capital gain and you calculate a net capital loss on Form T1055, see the instructions on that form for a possible adjustment to line 24. Form T1055, Summary of Deemed Dispositions – (2002 and later tax years) Use Form T1055 to calculate the income, or the capital gain or loss, from deemed dispositions. Deemed disposition A trust is deemed to have disposed of its capital property (other than exempt property), land inventory, and Canadian and foreign resource properties on specified dates called deemed disposition days. For more information about the dates, see the next section Deemed disposition day. For 2016 and subsequent years, where the primary beneficiary of an alter ego trust, spousal or common-law partner trust, or the last surviving beneficiary of a joint spousal or common-law partner trust dies, there is a deemed year-end of the trust on the date of death of the beneficiary. The income that is deemed to be recognized upon the death of the beneficiary must be reported on the trust’s T3 return filed for the deemed year-end of the trust. Note Income of the trust which became payable to the beneficiary prior to their death is generally included in the amounts reported on a T3 slip to the beneficiary and will be included in the beneficiary’s income in their final T1 return. However, for 2016 and subsequent years, in the case of a testamentary spousal or common-law partner trust, a joint election between the trust and the deceased beneficiary’s graduated rate estate can be filed to report the income that is deemed to be recognized upon the death of the beneficiary for the year in the beneficiary’s final T1 return. This income shall be reported on the T3 slip issued to the beneficiary. For the joint election to be valid all the following requirements must be met: Immediately before death, the beneficiary was a resident of Canada. The trust is a testamentary trust that is a post-1971 spousal or common-law partner trust and was created by the will of a taxpayer who died before 2017. A copy of the joint election is filed with both the final T1 return of the beneficiary and the T3 return for the deemed year-end of the trust. To make the election, send to the CRA a letter for both the final T1 return and the trust’s T3 return with all of the following information: the T1 and T3 account numbers the income amount that was allocated in the T3 slip and reported on the final T1 return filed for the deceased beneficiary the signatures, names and addresses of both the trustee(s) of the trust and the executor(s) for the deceased beneficiary The due date for both the T3 return as well as any balance payable of the deemed taxation year will be 90 days after the end of the calendar year in which the deemed year-end falls. For example, should the deemed year-end fall on June 3, the return and any balance payable will be due 90 days after December 31. In addition to the properties referred to above, if a post-1971 testamentary spousal or common-law partner trust holds an AgriInvest Fund 2 that was transferred to it on the death of the settlor, report a deemed payment out of the fund on the day the beneficiary spouse or common-law partner dies. If, after a deemed disposition that was to be reported on Form T1055, the trust actually disposed of the property in the same tax year, use Schedule 1 to report the gain or loss from the actual disposition. If the trust is a post-1971 spousal or common-law partner trust, a joint spousal or common-law partner trust, or an alter ego trust, the gain or loss should instead be reported on Form T1055. If a deemed disposition occurs, the trust is considered to have done both of the following: disposed of its capital property (including depreciable property of a prescribed class), land inventory, and Canadian and foreign resource properties at the end of the deemed disposition day, at the fair market value (FMV) reacquired them immediately after, at a cost equal to the same FMV For depreciable property, the trust has to report both capital gains and recapture of capital cost allowance. Use Form T1055 to calculate: the adjustments to line 24 of Schedule 1 the amount of tax on which the trust can elect to defer payment the amount of taxable and deemed taxable capital gains to which you can apply the trust's net capital losses of other years Deemed disposition day This is the day we consider the trust to have disposed of its capital property, land inventory, and Canadian and foreign resource properties. Generally, it is one of the following: For a spousal or common-law partner trust, the day the beneficiary spouse or common-law partner died For a joint spousal or common-law partner trust, the day the settlor or the beneficiary spouse or common-law partner died, whichever is later For an alter ego trust, the day the settlor died, unless the trust filed an election not to be considered an alter ego trust (see the definition of alter ego trust). If the trust has filed an election, the deemed disposition date will be 21 years after the day the trust was created For a trust to which property was transferred by an individual (other than a trust) where the transfer did not result in a change in beneficial ownership of that property and no person (other than the individual) or partnership has any absolute or contingent right as a beneficiary under the trust, on the day the individual dies For other trusts, 21 years after the day the trust was created Subsequent deemed dispositions will occur every 21 years, on the anniversary of the day established above. The following deemed disposition days will not result in another deemed disposition on the 21st anniversary of that deemed disposition day. Instead, the next deemed disposition for such trusts will occur 21 years after the day the trust was created or on the anniversary of a deemed disposition day otherwise established: Where a trust distributes property after December 17, 1999, to a beneficiary in respect of the beneficiary's capital interest in the trust and it is reasonable to consider that the distribution was financed by a liability of the trust, and one of the reasons for incurring the liability was to avoid paying taxes because of the death of any individual, the day the property was distributed Where an individual has transferred property (other than real property situated in Canada, Canadian resource property, or a timber resource property, property of a business carried on by the trust through a permanent establishment in Canada including capital property, property included in Class 14.1 (eligible capital property before January 1, 2017) in respect of or, and property described in the inventory of the business, or certain pension or other similar rights or interests) after December 17, 1999, to a trust for the transferor’s spouse or common law partner, and it is reasonable to conclude that the property was transferred knowing that the individual planned to emigrate from Canada, the day the individual ceases to be resident in Canada Exemption from Form T1055 deemed dispositions When a trust is excluded from the deemed disposition rule in paragraph 104(4)(b) (for example, all of the trust’s interests had vested indefeasibly prior to the 21st anniversary after the day the trust was created), or is not reporting any deemed dispositions, a statement should be sent to us outlining the reason(s) for not filing Form T1055. The following trusts are excluded from the deemed dispositions reported on Form T1055: A specified trust (as described in Chart 1 – Types of Trusts) A unit trust A trust in which all interests have been permanently vested. This exception applies primarily to those commercial trusts (all trusts other than personal trusts) that do not qualify as unit trusts. This exception does not apply to any of the following: a post 1971 spousal or common-law partner trust a joint spousal or common-law partner trust or an alter ego trust a trust to which property was transferred by an individual (other than a trust) where the transfer did not result in a change in beneficial ownership of that property and no person (other than the individual) or partnership has any absolute or contingent right as a beneficiary under the trust a trust resident in Canada that has non-resident beneficiaries, if the fair market value (FMV) of the non-resident beneficiaries' interests in the trust is more than 20% of the total FMV of all the interests in the trust a trust that distributed property after December 17, 1999, to a beneficiary in respect of the beneficiary's capital interest in the trust and it is reasonable to consider that the distribution was financed by a liability of the trust, and one of the reasons for incurring the liability was to avoid paying taxes because of the death of any individual a trust under the terms of which, all or part of any person's interest is to be terminated with reference to a period of time otherwise than as a consequence of terms of the trust under which an interest in the trust is to be terminated as a result of a distribution to the person (or the person’s estate) of property of the trust if the FMV of the property to be distributed is proportionate with the FMV of the person’s interest immediately before the distribution. Form T2223, Election Under Subsection 159(6.1) of the Income Tax Act, by a Trust to Defer Payment of Income Tax The trust can elect to pay its income tax arising from the deemed dispositions reported on Form T1055 in up to 10 annual instalments. Interest at the prescribed rate will apply. Use Form T2223 to make this election, and send it to your tax services office no later than the day the return is due for the tax year the deemed disposition occurs. For more information, call 1-800-959-8281. Transfer of trust property to another trust If one trust (Trust A) transfers capital property, land inventory, or resource property to another trust (Trust B), the deemed disposition day for Trust B becomes the earliest of the following dates: Trust A's deemed disposition day that would have occurred if the transfer had not been made Trust B's deemed disposition day that would have occurred if the transfer had not been made the day of the transfer if the original transfer to Trust A occurred on a rollover basis, for example, where Trust A is one of the following: a spousal or common-law partner trust, and the beneficiary spouse or common-law partner is still alive at the time of the transfer a joint spousal or common-law partner trust, and the settlor or beneficiary spouse or common-law partner is still alive at the time of the transfer an alter ego trust, and the settlor is still alive at the time of the transfer The last condition will not apply when the transfer is between two trusts of the same type. For example, from one alter ego trust to another alter ego trust.
Schedule 8 – Investment Income, Carrying Charges, and Gross-up Amount of Dividends Retained by the Trust ▲
Lines 1 to 3 – Dividends from taxable Canadian corporations Send us a statement listing the actual amount of dividends the trust received from taxable Canadian corporations. In this statement, include actual and deemed taxable dividends. Do not include non-taxable dividends (see Lines 7 to 12 – Other investment income), or capital gains dividends that you report on line 10 or 11 of Schedule 1. We consider dividends credited to the trust's account by a financial institution to have been received by the trust, even if the trust did not receive a T3 or T5 slip. The gross-up amount of taxable dividends received from taxable Canadian corporations qualifies for the dividend tax credit. This may reduce the trust's tax payable. If the trust designated the taxable dividends to beneficiaries, the tax payable by the beneficiaries may be reduced. The type of dividends the trust receives determines which dividend tax credit rate it will apply to the gross-up amount of the dividends. For eligible dividends received from qualifying taxable Canadian corporations, the rate is 15.0198%. For dividends other than eligible dividends the rate is 9.0301%. Box 23 on a T3 slip and box 10 on a T5 slip show the actual amount of dividends other than eligible dividends. Enter these amounts on line 1 of Schedule 8. Box 49 on a T3 slip and box 24 on a T5 slip show the actual amount of eligible dividends. Enter these amounts on line 2 of Schedule 8. Lines 4 to 6 – Foreign investment income Report investment income from foreign sources in Canadian dollars. Calculate how much to report by multiplying the foreign income by the exchange rate in effect on the day that the trust received the income. If the amount was paid at various times throughout the year, to get the applicable rate, go to Exchange Rates or call 1-800-959-8281. Report the full amount of the foreign income. Do not reduce it by the tax withheld by foreign authorities. Lines 7 to 12 – Other investment income Report bond interest, bank interest, mortgage interest, and other dividends (including dividends under a dividend rental arrangement). We consider interest and dividends credited to the trust's account by a financial institution to have been received by the trust. Report interest on tax refunds received in the year on line 11. Do not include the following: dividends the trust received from taxable Canadian corporations reported on lines 1 and 2 capital gains dividends reported on line 10 or 11 of Schedule 1 non-taxable dividends (see Non-taxable dividends received by a trust below) For more information on the method of reporting interest and other investment income, see the General Income Tax and Benefit Guide, and archived Interpretation Bulletin IT-396, Interest Income. Non-taxable dividends received by a trust If the trust received a non-taxable dividend, do not include it in the trust's income. An example of a non-taxable dividend is a tax-free dividend that a Canadian private corporation pays from its capital dividend account. Certain non-taxable dividends that the trust received, other than dividends paid out of the capital dividend account, may reduce the adjusted cost base of the shares on which the dividends were paid. Make this adjustment when calculating a capital gain or loss if the trust later disposes of the shares. If the trust pays out non-taxable dividends to its beneficiaries, inform the beneficiaries that they should not include these dividends in income. You also have to file a statement with the return containing all of the following information: the name of the payer corporation the names of the beneficiaries, and the amount of non-taxable dividends that each beneficiary received Lines 13 to 17 – Carrying charges and interest expenses Carrying charges and interest expenses include: interest on money borrowed to earn investment income fees for the management or safe custody of investments accounting fees for recording investment income investment counsel fees Note A deduction of an amount paid or payable in respect of the use of a safety deposit box of a financial institution is not allowed. Do not include trustee fees paid by the trust or brokerage fees or commissions paid by the trust to buy or sell securities. If the trust paid these expenses to purchase a security, they are part of its cost. If the trust paid them to sell a security, claim them as "Outlays and expenses (from dispositions)" in column 4 of Schedule 1. You can deduct interest expenses on a life insurance policy loan if the trust used the proceeds of the loan to earn income. If the trust elects to add the interest expense to the adjusted cost base of the policy, you cannot deduct it on line 14 of the return. If the trust is claiming interest paid on a policy loan during the year, the insurer has to complete Form T2210, Verification of Policy Loan Interest by the Insurer, no later than 90 days after the trust's tax year-end. Lines 18 to 32 – Calculating the gross-up amount of dividends retained or not designated by the trust Use this section to calculate the gross-up amount of actual dividends from taxable Canadian corporations included on lines 1 and 2 that the trust retained. The gross-up rate for eligible dividends received in the year is 38% of the dividends received. This calculation is done on lines 18 to 24. The gross-up rate for dividends other than eligible dividends received in 2023 is 15%. This calculation is done on lines 25 to 31. The gross-up does not apply to taxable Canadian dividends received by the trust if they are allocated to a non-resident beneficiary. If you have allocated dividends by including them in the amount on line 926 of Schedule 9, the dividends are not designated. Do not include them on line 19 or line 26. Claim the carrying charges that relate to dividends on line 16 of Schedule 8. Line 19 – Eligible dividends designated to beneficiaries Enter the amount of net eligible dividends, after related expenses, that you designated to beneficiaries from line 949 of Schedule 9. Line 21 – Eligible dividends allocated, but not designated, to non-resident beneficiaries Enter the amount of net eligible dividends, after related expenses, included in Column 2, line 926 of Schedule 9. If the dividends have been allocated to non-resident beneficiaries on line 949, do not include them on line 21. Line 24 – Gross-up amount of eligible dividends retained or not designated by the trust Multiply the amount on line 22 by 38% to calculate the amount to enter on line 24. You have to apply the gross up rate to actual eligible dividends that have been retained in the trust, other than those allocated but not designated to non-resident beneficiaries, before you deduct the related expenses. Enter this amount in the calculation area for line 13 of Schedule 11. Line 26 – Dividends other than eligible dividends designated to beneficiaries Enter the amount of net dividends other than eligible dividends, after related expenses, that you designated to beneficiaries from line 923 of Schedule 9. Line 28 – Dividends other than eligible dividends allocated, but not designated, to non-resident beneficiaries Enter the amount of net dividends other than eligible dividends, after related expenses, included in Column 2, line 926, Part A of Schedule 9. If the dividends have been allocated to non-resident beneficiaries on line 923, do not include them on line 28. Line 31 – Gross-up amount of dividends other than eligible retained or not designated by the trust Multiply the amount on line 29 by 15% for 2023 for dividends other than eligible dividends, and enter the result on line 31. You have to apply the gross-up rate to actual dividends other than eligible dividends that have been retained in the trust, other than those allocated but not designated to non-resident beneficiaries, before you deduct the related expenses. Enter this amount in the calculation area for line 14 of Schedule 11. Line 32 – Total gross‑up amount of dividends other than eligible retained or not designated by the trust Add the gross-up amount of both the eligible dividends and the dividends other than eligible dividends from lines 24 and 31. Enter the result on line 30 of the return and on line 18 of Schedule 12, if applicable. For more information, see archived Interpretation Bulletin IT-524, Trusts – Flow-Through of Taxable Dividends to a Beneficiary – After 1987.
Transfers and loans of property
Special rules may apply to amounts from a property that, under certain conditions, is held by the trust or is transferred or loaned to the trust. We refer to a person who has loaned or transferred property as the "transferor." A transferor, who is alive and resident in Canada, may lend or transfer property to the trust for the benefit of: the transferor's spouse or common-law partner, or a person who has since become the transferor's spouse or common-law partner the transferor's related minor (such as a child, grandchild, sister, brother, niece, or nephew under 18 years of age at the end of the year) In either case, any income or loss from that property may have to be reported on the transferor's return. Note The transferor does not have to report the income of the trust if the related minor turns 18 years of age before the end of the year. The transferor may also have to report taxable capital gains or allowable capital losses from the disposition of property loaned or transferred to a trust for the benefit of the transferor's spouse or common-law partner, or a person who has since become the transferor's spouse or common-law partner. The property may have been sold to the trust at its fair market value, or loaned to the trust at a prescribed rate of interest, which was paid within 30 days of the tax year-end. If this is the case, any income or loss, or any taxable capital gain or allowable capital loss, from that property is generally income of the trust. For this income, issue the T3 slip to the beneficiary, not to the transferor. An individual can receive a low-interest or interest-free loan from a trust to which another individual transfers property. If the two individuals do not deal at arm's length, you will normally be required to report the income from that loaned property or any property substituted for it on the trust's return. This is not the case if the income is attributable to another individual. This also applies to an arm's length commercial loan that the individual uses to repay the original low-interest or interest-free loan. If the trust's terms are such that the transferred property may revert to the transferor, or if the transferor keeps a certain degree of control over the property, see Exceptions and limits to income allocations. If the income from loaned or transferred property is to be included on the transferor's return, you generally have to report it on the trust's return. Issue a T3 slip reporting the income as that of the transferor. For more information about transfers and loans of property, see Guide T4037, Capital Gains, and the following archived interpretation bulletins: Archived IT-286R Trusts – Amount Payable Archived IT-369R Attribution of Trust Income to Settlor, and its Special Release Archived IT-510 Transfers and Loans of Property Made After May 22, 1985 to a Related Minor Archived IT-511R Interspousal and Certain Other Transfers and Loans of Property Exceptions and limits to income allocations Generally, trust income is allocated to beneficiaries, or taxed in the trust, according to the provisions of the will or trust document, with the following exceptions and limits: A post-1971 spousal or common-law partner trust (other than one created before December 21, 1991), joint spousal or common-law partner trust, or alter ego trust cannot deduct amounts payable in a tax year to anyone except one of the following: for a trust that was a post-1971 spousal or common-law partner trust on December 20, 1991, or a spousal or common-law partner trust created after December 20, 1991, the beneficiary spouse or common-law partner, while the beneficiary spouse or common-law partner is alive for a joint spousal or common-law partner trust, the settlor or the beneficiary spouse or common-law partner while either one of them is alive for an alter ego trust, the settlor while the settlor is alive A post-1971 spousal or common-law partner trust, joint spousal or common-law partner trust, or alter ego trust cannot deduct the allocation of any income realized from deemed dispositions of capital property, land inventory of the trust's business, and Canadian and foreign resource property that arose on the death of one of the following: for a post-1971 spousal or common-law partner trust, the beneficiary spouse or common-law partner for a joint spousal or common-law partner trust, the settlor or the beneficiary spouse or common-law partner, whichever is later for an alter ego trust, or a trust to which property was transferred by an individual (other than a trust) where the transfer did not result in a change in beneficial ownership of that property and no person (other than the individual) has any absolute or contingent right as a beneficiary under the trust, the day on which the death of the individual occurs for the deemed payment from an AgriInvest Fund 2, the beneficiary spouse or common-law partner The trust cannot deduct income from payments out of an AgriInvest Fund 2 unless one of the following conditions are met: the trust is a testamentary spousal or common-law partner trust and this income was received while the beneficiary spouse or common-law partner was alive the trust is a communal organization Under subsection 75(2) of the Act, certain inter vivos trusts resident in Canada and which were created after 1934 may have property (or property substituted for it) that: may revert to the contributor may be distributed to beneficiaries determined by the contributor at a time after the trust was created may only be disposed of with the consent of, or at the direction of, the contributor while the contributor is alive or exists Certain related amounts, including taxable capital gains and allowable capital losses from that property or the substituted property, are considered to belong to the contributor during the contributor's life or existence while a resident of Canada. The trust must still report the amount on the trust's T3 return and issue a T3 slip reporting the amount as that of the contributor of the property. For more information, see archived Interpretation Bulletin IT-369R, Attribution of Trust Income to Settlor, and its Special Release. The attribution rules in subsection 75(2) apply only in respect of property held by a trust that is factually resident in Canada. However, similar provisions exist in section 94 to apply to trusts that are deemed resident. Contact the Winnipeg Tax Centre for more information on how these rules apply. A trust cannot allocate capital losses and non-capital losses to beneficiaries of a trust except: capital losses, if it is an insurance-related segregated fund trust losses of revocable trusts and from blind trusts. Report these losses in brackets in the appropriate box on a separate T3 slip for the beneficiary. Clearly indicate the type of loss in the footnote area below box 26 on the T3 slip We consider income that was not paid or payable to a beneficiary to be allocated to a beneficiary if they have a vested right to its income, and: the trust is resident in Canada throughout the year the beneficiary is under 21 years of age at the end of the year the beneficiary's right to income is vested by the end of the year, it did not become vested due to the exercise or non-exercise of a discretionary power by any person, and it is not subject to any future condition other than the condition that the beneficiary survive to an age of not more than 40 years The amount of income that can be allocated to a beneficiary may be limited if: a beneficiary's share of the income of the trust is less than their capital interest in the trust the beneficiary is a designated beneficiary and the trust was not resident in Canada throughout the tax year When a trust resident in Canada distributes property to a beneficiary and the trust realizes a capital gain, the trust can elect to treat the income as taxable in the trust. That is, the taxable capital gain will not be considered payable to the beneficiary if the trust: was resident in Canada when it distributed the property filed an election with its T3 return for the year, or a preceding tax year, in which the property was distributed The election can be made for distributions to all beneficiaries or only for distributions to non-resident beneficiaries. The trust may have filed such an election in the current year or any preceding year. If this is the case, calculate the trust's income available for allocation to a beneficiary without taking into consideration any gains realized on the distribution of property to beneficiaries covered by the election while the trust was resident in Canada. A deemed resident trust is limited in the amounts that it can allocate to non-resident beneficiaries. For more information, contact the Winnipeg Tax Centre. For tax years that end after March 4, 2010, a resident contributor to a deemed resident trust may elect to include in computing their income, a portion of the income earned by the trust. Generally, this portion is equal to the amount of the resident contributor’s contribution to the trust as a percentage of all contributions made by all resident and connected contributors. The amount included in the electing contributor’s income will be deemed to be income from property from a source in Canada, unless the amount is designated by the trust under paragraph 94(16)I. A valid election must be filed in writing, on or before the contributor’s filing due date for the first tax year for which the election is to take effect. A valid election must also include the trust’s Canadian tax account number, and proof that the contributor has notified the trust of the contributor’s intention to become an electing contributor no later than 30-days after the trust’s tax year that ends in the initial year. This is an irrevocable election. Once a resident contributor has chosen to become an electing contributor, they will continue to be an electing contributor for all subsequent tax years. The trust may deduct, from its income for the tax year, an amount equal to the amount included in calculating the electing contributor's income as a result of this election. The trust must still report the amount on the trust’s T3 return and issue a T3 slip reporting the amount as that of the electing contributor of the property. For more information, contact the Winnipeg Tax Centre. Income to be taxed in the trust ▲ You can choose to report income on the trust return, rather than report it in the hands of the beneficiaries, as long as the trust is: resident in Canada throughout the year not exempt from tax not a specified trust (as defined in Chart 1 – Types of Trusts) This applies to income paid or payable to beneficiaries. You make this choice by indicating on line 27 of the T3 return for the year that you are making a designation under subsection 104(13.1). Once you make this choice, you cannot deduct on line 28 the income designated in the election. An example of when you might use this designation is in a year when a trust has taxable income and a non-capital loss carry forward. Once you make the choice, you have to make it for each beneficiary. It reduces a beneficiary's income from the trust by that beneficiary's proportionate share of the income reported on the trust's return. We show you how to calculate the proportionate share in the following section. You can make a similar designation under subsection 104(13.2) if taxable capital gains are included in the income reported on the trust's return. This will reduce the beneficiary's taxable capital gains from the trust by that beneficiary's proportionate share of taxable capital gains reported on the trust's return. An example of when you might want to make the subsection 104(13.2) designation is when you are able to use the trust's non-capital loss or net capital loss carry forward to absorb the current-year taxable capital gain. Generally, amounts designated under subsections 104(13.1) and 104(13.2) will reduce the adjusted cost base of a beneficiary's capital interest in the trust unless the interest was acquired for no consideration and the trust is a personal trust. If you choose to designate any portion of the beneficiary's income to be reported on the trust return: enter the amount on line 27 of the return send us a statement showing the income you are designating and the amounts you are designating for each beneficiary Designations under subsections 104(13.1) and (13.2) to retain and tax income or capital gains in the trust are restricted after 2015 as a result of subsection 104(13.3). Subsection 104(13.3) ensures that these designations are made only to the extent that the trust has a nil taxable income for the year in which the designation is made. Proportionate share formulas Use the following formulas to calculate designations under subsections 104(13.1) and 104(13.2). You have to apply these formulas to each beneficiary. A trust cannot use these designations to tax one beneficiary's share in the trust and allocate another share to a beneficiary unless the trust agreement entitles one beneficiary to the trust's income and another beneficiary to the trust's capital. Subsection 104(13.1) A ÷ B × C where: A = beneficiary's share of trust income (calculated without reference to the Act) B = total of amount A for all beneficiaries C = trust income designated under subsection 104(13.1) Subsection 104(13.2) A ÷ B × C where: A = beneficiary's share of the taxable capital gains of the trust calculated under the Act B = total of amount A for all beneficiaries C = net taxable capital gains designated under subsection 104(13.2) Example A trust's income is $9,000: investment income of $6,000 and taxable capital gains of $3,000. Both are shared equally between the trust's two beneficiaries, Josh and Ashley. The trust has $6,000 in losses from prior years to apply: a non-capital loss of $5,000 and a net capital loss of $1,000. Therefore, the trustee decides to report $6,000 of income on the trust return by designating $5,000 under subsection 104(13.1) and $1,000 of taxable capital gains under subsection 104(13.2), against which the losses are applied. Determine the amount designated under subsection 104(13.1) for Josh as follows: A ÷ B × C $3,000 ÷ $6,000 × $5,000 = $2,500 Therefore, the amount designated for Josh is $2,500. Because Ashley shares equally, her calculation is the same. Determine the amount designated under subsection 104(13.2) for Josh as follows: A ÷ B × C $1,500 ÷ $3,000 × $1,000 = $500 Therefore, the amount designated for Josh is $500. Because Ashley shares equally, her calculation is the same. Preferred beneficiary election A trust and a preferred beneficiary can jointly elect, in the year, to include in a preferred beneficiary's income for that year, all or part of the trust's accumulating income for the year. You can deduct the elected amount from the trust's income, up to the amount of the accumulating income. The elected amount for a preferred beneficiary must not be more than the allocable amount of the trust's total accumulating income. See the definition of Preferred beneficiary. The preferred beneficiary election cannot be made by the trusts listed under Exemption from Form T1055 deemed dispositions. For the trusts listed below, you can only make the election for the following: a spousal or common-law partner trust, in respect of the beneficiary spouse or common-law partner while the beneficiary spouse or common-law partner is alive a joint spousal or common-law partner trust, in respect of the settlor or the beneficiary spouse or common-law partner while either of them is alive an alter ego trust, in respect of the settlor while the settlor is still alive A trust's accumulating income for the year is generally its income for the year after deductions, but without regard to amounts allocated under preferred beneficiary elections. Accumulating income does not include the income from the deemed disposition of capital property, land inventory, or resource property on the death of: the beneficiary spouse or common-law partner, for a spousal or common-law partner trust the settlor or the beneficiary spouse or common-law partner, whichever is later, for a joint spousal or common-law partner trust the settlor, for an alter ego trust Accumulating income also does not include income arising from the deemed disposition of property to a beneficiary that results in a disposition of all or part of the beneficiary's capital interest in the trust, when the property is distributed to a beneficiary other than all of the following: the beneficiary spouse or common-law partner for a post-1971 spousal or common-law partner trust if the beneficiary spouse or common-law partner is alive the settlor or the beneficiary spouse or common-law partner, for a joint spousal or common-law partner trust if either of them is alive the settlor, for an alter ego trust, if the settlor is alive Accumulating income of a trust does not include amounts paid or deemed to have been paid from an AgriInvest Fund 2. However, a preferred beneficiary election can include these amounts paid to a testamentary spousal or common-law partner trust while the beneficiary spouse or common-law partner was still alive. Note Accumulating income is calculated as if you have deducted the maximum amount of income that became payable in the year to the beneficiaries. You can make a preferred beneficiary election for a tax year by filing the following: a statement making the election for the year, stating the part of the accumulating income on which you are making the election, and signed by both the preferred beneficiary (or guardian) and the trustee with the authority to make the election a statement signed by the trustee showing the calculation of the amount of the beneficiary's share of the accumulating income, and indicating the beneficiary's social insurance number, their relationship to the settlor of the trust, and whether one of the following conditions is met: the beneficiary is claiming a disability amount a supporting individual is claiming a disability amount for that beneficiary (if yes, provide the name, address, and social insurance number of the supporting individual) the beneficiary is 18 years of age or older, and in the beneficiary's tax year that ends in the trust's tax year, another individual can claim an amount for an infirm dependant age 18 or older for that beneficiary, or could claim the amount if the beneficiary's income is calculated before including the income from the preferred beneficiary election. If this is the case, provide a statement from the medical practitioner confirming the beneficiary's impairment in the first year the claim is made File the election with the return or separately, no later than 90 days after the end of the trust's tax year for which the election was made. For a preferred beneficiary election to be valid, you have to file it on time. If you file the election late, we will tax the accumulating income in the trust. For more information regarding late-filed or amended elections, see Elections. If you are making a preferred beneficiary election, see archived Interpretation Bulletin IT 394, Preferred Beneficiary Election. Preferred beneficiary election and the qualified disability trust election The introduction of the qualified disability trust (QDT) provisions has not restricted the availability of the preferred beneficiary election, nor have there been any changes to the method in which a preferred beneficiary election is made. Many of the requisite conditions for making a preferred beneficiary election differ from those required for a trust to be a QDT. Accordingly, where the respective conditions of each election are met, the trust has the ability to choose whether to make a preferred beneficiary election or a QDT election. It is also possible for a trust which elects to be a QDT to also make a preferred beneficiary election (jointly with the beneficiary) in a given tax year. How to complete Schedule 9 ▲ Report allocated income using the columns provided: Column 1 – income paid or payable to resident beneficiaries Column 2 – income paid or payable to non-resident beneficiaries Column 3 – income allocated by a preferred beneficiary election For more information, see the appropriate column heading in the following sections. Any amounts allocated to a beneficiary on lines 921 to 926 and on line 949 are generally deducted from the trust's income. Before allocating income to the beneficiaries, you must first take into consideration the trust's expenses. If the trust claimed expenses on line 20 of the T3 return, deduct them from the specific source of income to which the expense relates. If the expense relates to more than one source of income, you must divide it between the applicable sources of income. The trust can then allocate the remaining income to the beneficiaries. Column 1 – Resident ▲ Include in this column, allocations and designations of income paid or payable to resident beneficiaries. If the income is allocated, but no amounts are designated, enter the total amount on line 926. If you are designating the income, enter the amounts on the appropriate lines. In addition, use Part B for other amounts you are designating to the beneficiaries. For more information, see: Allocations and designations archived Interpretation Bulletin IT 286R, Trusts – Amount Payable archived Interpretation Bulletin IT 342R, Trusts – Income Payable to Beneficiaries Column 2 – Non-resident ▲ Include in this column, allocations and designations of income paid or payable to non-resident beneficiaries. If the income is allocated, but no amounts are designated, enter the total amount on line 926. Report the total of the amounts in column 2 as estate or trust income on an NR4 slip, not on a T3 slip. Most amounts paid or payable to non-resident beneficiaries are subject to a Part XIII withholding tax. For more information, see Part B – Calculating Part XIII non-resident withholding tax. Enter the total of column 2 on line 15 of Schedule 10. If you allocate certain income to non-resident beneficiaries, the trust may also be subject to Part XII.2 tax. When allocating such income, include the full amount before deducting Part XII.2 tax. For more information, see Schedule 10 - Part XII.2 Tax and Part XIII Non-Resident Withholding Tax. Column 3 – By preferred beneficiary election ▲ A trust and a preferred beneficiary can jointly elect to have the trust's accumulating income taxed in the hands of the preferred beneficiary. Use column 3 to allocate and designate the elected accumulating income. Complete a separate T3 slip for this income. You can designate all of the following types of income under a preferred beneficiary election: taxable capital gains (line 921) actual amount of dividends from taxable Canadian corporations, both eligible dividends (line 949) and dividends other than eligible dividends (line 923) foreign business income (line 924) foreign non-business income (line 925) You have to make the designations on the trust's return for the year in which you include the relevant amounts in the trust's income. If the income is allocated but no amounts are designated, enter the total amount on line 926. If you are designating the income, enter the amounts on the appropriate lines. In addition, use Part B for other amounts you are designating to the beneficiaries. Part A – Total income allocations and designations to beneficiaries Lines 921 to 928 and 949▲ Answer all seven questions, and send us any necessary statements. For information about income attributed to the transferor, see Transfers and loans of property. Line 921 – Taxable capital gains ▲ You can allocate and designate all or part of a Canadian resident trust's net taxable capital gains to a beneficiary. If you designate this amount, we consider it to be the beneficiary's taxable capital gain. A trust's net taxable capital gain is the amount by which the total of the trust's taxable capital gains for a tax year (which includes, amounts that are deemed to be taxable capital gains to the trust for the year), is more than the total of: the trust's allowable capital losses for the tax year (except, allowable business investment losses) net capital losses of other years deducted in calculating the trust's taxable income for the tax year When calculating the maximum net taxable capital gains available for designation in the current year, you have to reduce the net taxable capital gains (as calculated above) by both of the following: Any expenses the trust incurred to earn income included on line 1 of the return Amounts designated under subsection 104(13.2) to be taxed in the trust, other than amounts for which a deduction has been claimed on line 34. For more information, see Income to be taxed in the trust Note If the amount on line 1 includes any deemed taxable capital gains (including gifts of capital property), call 1-800-959-8281 for more information. You have to include both of the following in the amounts you enter on line 921: capital gains distributions designated as payable by a mutual fund trust to a non-resident beneficiary net taxable capital gains allocated by a trust governed by an employee benefit plan If you complete line 921 and you are allocating capital gains eligible for the capital gains deduction, you also have to complete line 930. The only taxable capital gains eligible for this deduction are from the disposition of qualified farm or fishing property made after May 1, 2006, and qualified small business corporation shares. Line 922 – Lump-sum pension income ▲ In a year throughout which a testamentary trust was a resident of Canada, it can designate to a beneficiary all of the following: certain pension income superannuation benefits amounts received from a deferred profit sharing plan Complete Schedule 7, Pension Income Allocations and Designations. Enter on line 922, those amounts from Schedule 7 that qualify for a transfer to a registered pension plan or a registered retirement savings plan. Line 923 – Actual amount of dividends other than eligible dividends Enter on this line the trust's actual amount of dividends other than eligible dividends designated to beneficiaries of the trust in the year. Line 924 – Foreign business income Enter on line 924 the trust's foreign business income designated to the beneficiaries in the year. Line 925 – Foreign non-business income Enter all foreign non-business income designated to beneficiaries. This may include income from a foreign pension or interest from foreign sources. Line 926 – Other income ▲ Enter on this line all income allocated to beneficiaries that is not shown on lines 921 to 925 or line 949. This includes business, farming, fishing, or rental income, interest or pension income (other than from foreign sources and lump-sum pension income included on line 922), death benefits, retiring allowances, and dividends under a dividend rental arrangement. Include the amount of any taxable benefits to resident beneficiaries under the trust, unless the amounts are included on lines 921, 923 or 949. Note The total of the taxable benefits included on lines 921, 923, 926 and 949 should be the same as the total taxable benefits reported on line 24 of the T3 return. A graduated rate estate may be able to designate, in a year throughout which it was a resident in Canada, a lump-sum payment out of a registered pension plan to a beneficiary to acquire an annuity. Include these amounts from Schedule 7, Pension Income Allocations and Designations, on line 926. Show on line 946 the amount that qualifies for a transfer. Line 949 – Actual amount of eligible dividends Enter the actual amount of net eligible dividends, after related expenses, designated to beneficiaries in the year. Line 928 – Totals ▲ The total of lines 921 to 926, plus line 949 is the income allocated to the beneficiaries. The amount cannot be more than "Income before allocations" on line 25 of the return. Part B – Summary of other amounts designated to beneficiaries Lines 930 to 951▲ Complete this area only when there are designations, such as dividends from taxable Canadian corporations, foreign taxes paid for credit purposes, and pension income or retiring allowances qualifying for a transfer. Line 930 – Taxable capital gains eligible for deduction A personal trust that makes a designation on line 921 and has eligible taxable capital gains, also has to designate a portion of the trust's eligible taxable capital gains to the beneficiary for the beneficiary's capital gains deduction. Calculate the trust’s eligible taxable capital gains on Schedule 3. Enter on line 930, the lesser of the following amounts: the amount on line 921 the amount on line 30 of Schedule 3 Where the trust has realized in its tax year both taxable capital gains which are eligible for determining a beneficiary’s capital gains deduction, and taxable capital gains that are not eligible, very generally, the rules ensure that a proportionate share of each of the eligible taxable capital gain, and the non-eligible taxable capital gain is allocated and designated to each beneficiary. For more information, see “Box 30 – Capital gains eligible for deduction”. Where the trust’s taxable capital gains eligible for deduction in the current tax year relate to a capital gain reserve claimed in the trust’s prior tax year, see “Line 15 – Capital gains (losses) from reserves” and “Box 30 – Capital gains eligible for deduction”. Line 931 – Qualifying pension income ▲ Enter those amounts from Schedule 7, Pension Income Allocations and Designations, that qualify for the pension income amount. You can make this designation only if the beneficiary was the spouse or common-law partner of the deceased, and if the trust received the benefits of a life annuity from a superannuation or pension plan. Line 932 – Taxable amount of dividends other than eligible dividends ▲ If you are designating dividends other than eligible dividends to a beneficiary who is either an individual or a trust (other than a registered charity), enter the result of the amount from line 923 multiplied by 1.15. Line 933 – Foreign business income tax paid Enter the trust's foreign business income tax paid and designated to the beneficiaries of the trust in the year on line 933. Line 934 – Foreign non-business income tax paid If you are designating a foreign tax credit to a beneficiary, you have to submit an official receipt or information slip from the foreign country. This is necessary to support the claim that the trust paid foreign non-business income tax, or that it was withheld from foreign non-business income the trust earned. The portion of foreign taxes you designate to a beneficiary has to be in proportion to the foreign income you designate to that beneficiary. You have to convert any foreign taxes paid in foreign currency to Canadian funds. For more information, see Income Tax Folio S5-F2-C1, Foreign Tax Credit, archived Interpretation Bulletin IT 201R, Foreign Tax Credit – Trusts and Beneficiaries, and see Line 23 – Federal foreign tax credit. Line 935 – Eligible death benefits ▲ A graduated rate estate (GRE) may receive a payment as a result of the employee's death to recognize the employee's service in an office or employment. Such a payment is usually from the deceased person's employer or from a trust fund the employer established. This payment may qualify as a death benefit, and the trust may be able to exclude up to $10,000 of the amount from income. If the GRE allocates the total death benefit to a single beneficiary according to the provisions of the will, the beneficiary may be able to exclude up to $10,000 of the payment from income. Enter on line 935, the amount from line 926 eligible for this exclusion. Where the GRE allocates the total death benefit to more than one beneficiary, apportion the amount eligible for this exclusion among those beneficiaries. The total eligible amount apportioned cannot exceed $10,000. The beneficiaries can use this information to calculate the taxable portion that they have to report on their T1 returns. If you exclude the eligible death benefit from the trust's income, only the taxable portion flows out to the beneficiary. Report only the taxable portion of the death benefit on line 11 of the T3 return. For more information, see Line 11–Other income. Line 937 – Insurance segregated fund net capital losses Enter the designated portion of net capital losses from the disposition of property by an insurance segregated fund. Line 938 – Part XII.2 tax credit Calculate the amount for line 14 of Schedule 10, and enter it here. Generally, you can designate the Part XII.2 tax credit only to those resident beneficiaries to whom you allocated income in column 1 of line 928, Schedule 9. Line 939 – Dividend tax credit for dividends other than eligible dividends ▲ Enter the result of the amount from line 932 multiplied by 9.0301%. Lines 940 and 941 – Investment tax credit (ITC) For 2016 and subsequent years, only graduated rate estates and communal organizations that are deemed to be inter vivos trusts can designate an ITC to their beneficiaries. Complete Part A of Form T2038-IND Investment Tax Credit (Individuals), to calculate the amount of the investment cost or expenditure and the ITC available. You will need the eligible amounts the trust invested to acquire property and the eligible expenditures for this part of the form. You have to reduce the trust's ITC by any amount allocated to beneficiaries. Enter the beneficiaries' share of the trust's investment cost or expenditures on line 940. You need this amount to determine the amount of the ITC you can designate to each beneficiary. Enter on line 941, the amount of the trust's ITC from Form T2038-IND that you designated to a beneficiary and did not deduct on line 26 of the trust's Schedule 11. Line 942 – Amount resulting in cost base adjustment Enter the amount by which the cost base of a beneficiary's interest in the trust may be reduced or increased. Note If you issued new units to a beneficiary in satisfaction of a distribution of income, do not include that amount here. Instead, advise the beneficiary that you have issued these units, as well as the number of units and their value. Line 945 – Other credits Research and development tax credit This credit is available to a trust resident in Newfoundland and Labrador, or Yukon. Enter the amount of this credit that you designated to a beneficiary and did not deduct on page 4 of the return. For more information, see Line 68 – Total other credits. Line 946 – Pension income qualifying for an eligible annuity for a minor ▲ Enter those amounts from Column D of Schedule 7, Pension Income Allocations and Designations, that qualify for an eligible annuity for a minor on line 946. Line 947 – Retiring allowance qualifying for transfer to an RPP or an RRSP Enter any retiring allowance eligible for a transfer to an RPP or an RRSP on line 947. Line 948 – Eligible amount of charitable donations Enter charitable donations designated to the beneficiaries of a communal organization on line 948. Line 950 – Taxable amount of eligible dividends ▲ If you are designating eligible dividends to a beneficiary who is either an individual or a trust (other than a registered charity), enter the result of the amount from line 949 multiplied by 1.38. Line 951 – Dividend tax credit for eligible dividends ▲ Enter the result of the amount from line 950 multiplied by 15.0198%.
Schedule 10 – Part XII.2 Tax and Part XIII Non-Resident Withholding Tax
Complete Schedule 10 if the trust is allocating income to designated beneficiaries where the trust has specified income (see the next section for details). The total of Part XII.2 and Part XIII tax is approximately equal to the Part I tax, plus provincial or territorial taxes, that would apply to the income if the beneficiaries were resident in Canada. Tax tip If the trust is a non-resident trust with investments in Canadian mutual funds, it may have paid Part XIII.2 tax during the tax year. The trust may be eligible to claim a refund of this tax. The trust may also qualify if it realized a Canadian mutual fund loss during the tax year. If this applies to you, see Form T1262, Part XIII.2 Tax Return for Non-Resident's Investments in Canadian Mutual Funds. Part A – Calculating Part XII.2 tax and the refundable Part XII.2 tax credit – Lines 1 to 14 Pay any Part XII.2 tax no later than 90 days after the trust's tax year-end. Part XII.2 tax applies when a trust meets all of the following conditions: has specified income as described below has a designated beneficiary as described below allocates or designates any of its income Part XII.2 tax does not apply to a trust that was one of the following throughout the year: a graduated rate estate a mutual fund trust a specified trust (as defined in Chart 1 – Types of Trusts), unless the trust is a related segregated fund trust, a retirement compensation arrangement trust, a trust whose direct beneficiaries are specified trusts, a trust governed by an eligible funeral arrangement, a cemetery care trust and, in certain circumstances, an amateur athlete trust a trust that was exempt from Part I tax under subsection 149(1) of the Act a non-resident trust a deemed resident trust Specified income Specified income of a trust generally means its taxable capital gains or allowable capital losses from the disposition of taxable Canadian property, certain property transferred to a trust in contemplation of a person beneficially interested in the trust ceasing to be resident in Canada, and the total income (or loss) from all of the following sources: businesses carried on in Canada real or immovable properties located in Canada, such as land or buildings Canadian timber resource properties Canadian resource properties the trust acquired after 1971 Note Although the term designated income is used in Part XII.2, we use specified income in this guide and on Schedule 10 to avoid confusion with the term “designated income” used in other parts of this guide. Designated beneficiary Subject to all of the exclusions listed below, for the purpose of Part XII.2 tax, a designated beneficiary under a particular trust at any time, includes: a non-resident person a person who is exempt from Part I tax on all or part of their taxable income under subsection 149(1), where that person acquired an interest as a beneficiary under the particular trust after October 1, 1987 directly or indirectly from a beneficiary under the trust. For example, there are two exceptions to this rule. A person exempt from Part I tax is not a designated beneficiary if: the interest has been owned continuously since the later of October 1, 1987 and the date on which the trust was created, by persons who were exempt from Part I tax on all of their taxable income under subsection 149(1) the person is a trust governed by an RRSP or RRIF that acquired the interest directly or indirectly from an individual, the spouse or common-law partner, or former spouse or common-law partner of the individual who was, a beneficiary under the trust governed by the plan or fund another trust if any of its beneficiaries is either a trust or a designated beneficiary a partnership if any of its members is either a partnership or would be a designated beneficiary if that member held an interest in a trust A designated beneficiary does not include any of the following: a mutual fund trust resident in Canada a graduated rate estate an RRSP or RRIF that acquired its interest directly or indirectly from its beneficiary, the beneficiary’s spouse or common-law partner, or former spouse or common-law partner an entity that is exempt from Part I tax if its interest in the trust has been owned continuously since October 1, 1987, or the date on which the trust was created, by one or more entities that are exempt from Part I tax under subsection 149(1) a partnership, which would otherwise be a designated beneficiary, where no members of the partnership are designated beneficiaries and the partnership’s interest in the trust has never been held by anyone other than the partnership or an entity that is exempt from Part I tax under subsection 149(1) a trust, the beneficiaries of which are all either trusts that have no designated beneficiaries, or persons who are not designated beneficiaries A designated beneficiary is usually not entitled to the refundable tax credit for Part XII.2 tax that the trust paid. This means that you will generally not complete box 38 on the T3 slip for a designated beneficiary who is a Canadian resident. Also, before you calculate Part XIII non-resident withholding tax, you have to reduce the income payable to a non-resident beneficiary by the non-resident’s share of the Part XII.2 tax. For more information, see Line 13 – Adjustment for Part XIII tax purposes. Eligible beneficiary This term is used for a beneficiary who is not a designated beneficiary as described above. An eligible beneficiary is generally a Canadian resident who is entitled to a refundable Part XII.2 tax credit in proportion to the share of allocated or designated trust income. You have to include an amount equal to the Part XII.2 tax credit in the income allocated to the beneficiary. In effect, this credit replaces the income that the beneficiary would have received if the trust did not have to pay Part XII.2 tax. Line 6 – Total specified income This is the total of lines 1 to 5, which represents the specified income of the trust. Part XII.2 tax does not apply if the amount on line 6 is negative. Lines 7, 8, 10, and 11 – Adjusted amounts allocated and designated to beneficiaries Enter on line 7, the amount from column 1 of line 928, Schedule 9. Enter on line 8, the amount from column 2 of line 928, Schedule 9. Enter on line 10, the taxable benefits you reported on line 23 of the return. Line 11 represents both of the following amounts: the deduction from trust income for the portion of the trust's income you allocated to resident and non-resident beneficiaries, to be included in their income the deduction from trust income for the Part XII.2 tax the trust paid for the year Withhold the Part XII.2 tax from income you distribute to the beneficiaries. Line 12 – Part XII.2 tax payable Multiply by 40%, the lesser of the amount on line 6 and the amount on line 11. Enter the result on line 46 of the return. Line 13 – Adjustment for Part XIII tax purposes Calculate the amount of Part XII.2 tax that you attribute to non-resident beneficiaries. Transfer the amount from line 13 to line 21 to reduce the income subject to Part XIII tax. Line 14 – Part XII.2 refundable tax credit for eligible beneficiaries This is the amount of Part XII.2 tax attributable to eligible beneficiaries. It is also the amount eligible for the Part XII.2 refundable tax credit for these beneficiaries. If there is more than one eligible beneficiary, use the formula below to determine the amount of refundable tax credit to report in box 38 of the T3 slip for each eligible beneficiary: A × B ÷ C where: A = Part XII.2 tax paid by the trust (line 12) B = each eligible beneficiary's share of the amount from line 11 (the trust income you allocated to the eligible beneficiaries) C = adjusted allocations or designations for the year (line 11) Part B – Calculating Part XIII non-resident withholding tax – Lines 15 to 27 Complete this part if the trust allocated income to non-resident beneficiaries. Line 18 – Taxable capital gains distributions designated as payable by a mutual fund trust After March 22, 2004, a mutual fund trust that designates more than 5% of its capital gains distributions to non-resident beneficiaries (including any partnership that is not a Canadian partnership) must do an additional calculation for line 18. If this applies to the trust, complete lines 28 to 47 at the bottom of Part B. Enter the amount from line 43 of Schedule 10 on line 18. Line 20 – Amounts not subject to Part XIII tax: Other One example of an amount to enter on this line is an amount you paid or credited to a beneficiary resident in the United States, when the amount is derived from income sources outside Canada and it is not subject to withholding tax under the Canada – U.S. Tax Convention. Line 21 – Part XII.2 tax amount On this line, enter the amount from line 13, which is the amount of Part XII.2 tax you attribute to designated beneficiaries. Line 23 – Taxable Canadian property gains distributions for non-resident beneficiaries A mutual fund trust that designates more than 5% of its capital gains distributions to non-resident beneficiaries (including any partnership that is not a Canadian partnership) must include a portion of the distributions when calculating Part XIII tax. Enter the amount calculated at line 42 of Schedule 10 on line 23. Lines 25 to 27 – Non-resident tax payable Complete the rest of this schedule by referring to the NR4 return for the trust. Every non-resident person has to pay Canadian income tax of 25% under Part XIII, unless a tax treaty or convention provides a lower rate. Part XIII tax is paid on amounts that a Canadian trust paid or credited, or is considered to have paid or credited, to non-residents. You have to withhold and remit tax on these amounts. This tax has to be received by the Canada Revenue Agency or a Canadian financial institution on or before the 15th day of the month after the month during which the tax was withheld. Calculate the amount of non-resident tax payable and any balance due by following the steps in Part B of Schedule 10. Send any balance due to us, with Form NR76, Non-Resident Tax – Statement of Account, which is a combined remittance statement and receipt. If you are remitting Part XIII tax for the first time, send to the CRA a statement with the trust's name and address, the type of payment (Part XIII tax), and the month during which you withheld the tax. When we receive the payment, we will issue Form NR76. You can use the bottom portion for remitting future payments. You also have to complete an NR4 Summary, Summary of Amounts Paid or Credited to Non Residents of Canada, and an NR4 slip, Statement of Amounts Paid or Credited to Non Residents of Canada. For more information on non-resident income tax, see: Information Circular IC76 12R, Applicable rate of Part XIII tax on amounts paid or credited to persons in countries with which Canada has a tax convention Information Circular IC77 16R, Non-Resident Income Tax archived Interpretation Bulletin IT 465R, Non-Resident Beneficiaries of Trusts Example An inter vivos trust resident in Canada has two beneficiaries: Karson, a resident of Canada who is an eligible beneficiary, and Teagan, a non-resident who is a designated beneficiary. Each beneficiary is entitled to receive an equal share of the trust income that is distributed annually. The trust has $1,400 net income for the year, which includes net business income (from a business carried on in Canada) of $1,000, and net interest income of $400. On Schedule 10, the trustee would do all of the following: enter $1,000 on lines 1 and 6, since there are no other sources of specified income (the $400 interest is not specified income) enter $1,400 on line 11, since this is the total amount from columns 1 and 2 of line 928 of Schedule 9 enter the lesser of lines 6 ($1,000) and 11 ($1,400) in the calculation area for line 12 multiply $1,000 by 40%, and enter the result ($400) on line 12 calculate the amount that is not subject to Part XIII non-resident tax by completing the calculation area for line 13 (divide $700 by $1,400 and multiply by $400). Enter the result ($200) on line 13 and on line 21 calculate the amount of refundable Part XII.2 tax credit on line 14 by subtracting line 13 ($200) from line 12 ($400). Enter the result ($200) in box 38 on the T3 slip Karson received $500, but he will include $700 ($500 + $200) in his income for the year. This amount, which is entered in box 26 on the T3 slip, is the 50% portion of the trust income distributed to him under the terms of the trust agreement. On his T1 return he will claim a refundable Part XII.2 tax credit of $200. Teagan received $500. This amount, which is entered on the NR4 slip, is the 50% of the trust income distributed to her under the terms of the trust agreement. On Schedule 10, the trustee reduces the total income paid or payable to non-resident beneficiaries (line 15) by the Part XII.2 tax (line 21). Line 24 ($700 – $200 = $500) is the amount subject to non-resident tax. Completing the NR4 return Guide T4061, NR4 – Non-Resident Tax Withholding, Remitting, and Reporting, explains how to report amounts the trust paid or credited to non-residents of Canada and how to complete and distribute the NR4 return. Report the total trust income you allocated to a non-resident beneficiary as estate and trust income on the NR4 return. Types of income, except for taxable capital gains from a mutual fund trust, lose their identity when allocated to a non-resident beneficiary. Therefore, you have to total and report them as "Gross income" in box 16 of the NR4 slip. In box 14 or 24, enter an income code of "11" for estate or trust income. Enter a code of "58" if there were taxable Canadian property gains distributions to the non-resident. File this return no later than 90 days after the end of the trust's tax year.
Schedule 11 – Federal Income Tax
Use Schedule 11 to determine the federal income tax payable by the trust. Note The trust may be subject to minimum tax. For more information, see Schedule 12 – Minimum Tax. Lines 8 and 9 – Federal tax on taxable income Graduated Rate Estates (GRE) or Qualified Disability Trusts (QDT) A graduated rate estate or a qualified disability trust is taxed on its taxable income for the year at the federal tax rates for individuals. For more information on these types of trusts, see the description in Chart 1 – Types of Trusts. Trusts other than GRE and QDT Trusts other than a GRE or a QDT are taxed on their taxable income for the year at the highest individual rate of 33%. In addition, include any tax payable by a specified investment flow-through (SIFT) trust. For more information on SIFT trusts and their tax calculation, go to Specified investment flow-through (SIFT) trust income and distribution tax. Line 11 – Federal recovery tax ▲ Use this line to enter the result from the calculation on Form T3QDT-WS, Recovery Tax Worksheet. Recovery Tax A trust that was a qualified disability trust in a previous tax year is subject to the new recovery tax in a year if one of the following conditions is met: The trust ceases during the year to have among its beneficiaries any individuals who in one or more earlier tax years of the trust were electing beneficiaries of the trust. This will include the year in which the electing beneficiary of the trust (or if the trust had more than one electing beneficiary, the last of them) dies The year is the tax year deemed to have ended because the trust ceased to be resident in Canada The trust distributes capital to a beneficiary other than an individual who is an electing beneficiary for a particular year or was an electing beneficiary of the trust in an earlier tax year. The making by the trust of an amount payable out of the trust’s income for a year (i.e., the flowing out of its current income), or the subsequent satisfaction of a beneficiary’s right to enforce such an amount, does not trigger the application of the recovery tax. A payment to a beneficiary in the beneficiary’s capacity as a creditor of the trust also does not trigger the application of the recovery tax Lines 13 to 15 – Federal dividend tax credit ▲ Complete these lines if the trust reported a gross-up amount on line 24 or line 31 of Schedule 8 for dividends received from a taxable Canadian corporation in the tax year. Calculate the dividend tax credit for eligible dividends by multiplying the gross-up amount from line 24 of Schedule 8 by 54.5455%. Calculate the dividend tax credit for dividends other than eligible dividends by multiplying the gross-up amount from line 31 of Schedule 8 by 69.2308%. Enter the total of these amounts on line 15. Note Foreign dividends do not qualify for this credit. Line 16 – Donations and gifts tax credit ▲ Enter the amount from line 30 of Schedule 11A. Send us official receipts for all claims. Line 19 – Minimum tax carryover from previous years If the trust paid minimum tax in the 2016 to 2022 tax years, and does not have to pay minimum tax for the 2023 tax year, you may be able to claim a credit against the trust’s 2023 taxes payable. Use Part 7 of Schedule 12, Minimum Tax, to calculate the total minimum tax carryover. Tax tip You can carry over minimum tax from the seven previous tax years. Line 21 – Surtax on income not subject to provincial or territorial tax A resident trust that carries on business through a permanent establishment in a foreign country has to pay a federal surtax of 48% of its basic federal tax attributable to the income earned in the foreign country. A non-resident trust, or a deemed resident trust, pays this tax instead of provincial or territorial tax. However, business income that the trust earned in a province or territory through a permanent establishment in that province or territory is subject to the provincial or territorial tax instead of this 48% surtax. For more information, see Form T3MJ, Provincial and Territorial Taxes – Multiple Jurisdictions. Line 23 – Federal foreign tax credit This credit is available to a resident trust only for foreign income or profit taxes the trust paid on income it received from sources outside Canada. When you calculate the foreign tax credit, convert all amounts to Canadian currency. If the amount was paid at various times throughout the year, to get the applicable rate, see Exchange Rates or call 1-800-959-8281. In general, the foreign tax credit you can claim for each foreign country is the lesser of: the tax the trust paid to a foreign country the tax payable to Canada on the portion of the income the trust earned in the foreign country Use Form T3 FFT, T3 Federal Foreign Tax Credits, to calculate the trust’s foreign tax credit. When you complete Form T3 FFT, base the calculation of the credit on foreign income amounts that have been retained by the trust and not allocated to a beneficiary. Do not include any amounts relating to the designation of foreign income and foreign tax credits to the beneficiaries. Enter on line 23, the amount from line 12 of Form T3 FFT. The trust's federal foreign tax credit may be less than the tax paid to a foreign country. The trust can carry unclaimed foreign tax paid on business income back 3 years and forward 10 years. The trust cannot carry forward or carry back excess amounts of any foreign non-business income tax. You may be able to claim some or all of the excess as one of the following: a provincial or territorial foreign tax credit on Form T3 PFT, T3 Provincial or Territorial Foreign Tax Credit (a trust resident in Quebec should contact Revenu Québec about its entitlement to this credit) a deduction on line 19 of the return (see archived Interpretation Bulletin IT-506, Foreign Income Taxes as a Deduction from Income) Send us proof of the tax the trust paid to a foreign country. For more information, see Income Tax Folio S5-F2-C1, Foreign Tax Credit, and archived Interpretation Bulletin IT-201R, Foreign Tax Credit – Trusts and Beneficiaries. Line 25 – Allowable federal political contribution tax credit Claim the federal political contributions tax credit for the eligible amount of monetary contributions to a registered party, a registered association, or a candidate, as defined in the Canada Elections Act. Use the chart below to calculate the credit. Enter the total allowable credit on line 25. If the trust's total eligible federal political contributions are $1,275 or more, enter $650 on line 25. Send us an official receipt to the return as proof of the contribution. You do not have to send us a receipt for an amount shown in box 36 of a T5013 slip, or in a financial statement showing an amount a partnership allocated to the trust. For more information, see Information Circular IC75-2R, Contributions to a Registered Party, a Registered Association or to a Candidate at a Federal Election. Federal Political Contribution Tax Credit If your total federal political contributions (line 24 of your Schedule 11) were $1,275 or more, enter $650 on line 25 of your Schedule 11. Otherwise, complete the appropriate column depending on the amount on line 24. Line 24 is $400 or less Line 24 is more than $400 but not more than $750 Line 24 is more than $750 Enter your total contributions. 1 − 0.00 − 400.00 − 750.00 2 Line 1 minus line 2 (cannot be negative) = = = 3 × 75% × 50% × 33.33% 4 Multiply line 3 by line 4. = = = 5 + 0.00 + 300.00 + 475.00 6 Add lines 5 and 6 Enter this amount on line 25 of your Schedule 11. = = = 7 Line 26 – Investment tax credit A trust can claim an investment tax credit (ITC) on eligible investments and qualified expenditures that are listed on Form T2038(IND), Investment Tax Credit (Individuals). For example, a trust can claim an ITC on certain buildings, machinery, or equipment to be used in certain areas of Canada in qualified activities such as farming, fishing, logging, or manufacturing. To claim an ITC, you have to send to the CRA the completed Form T2038(IND) no later than 12 months after the due date of the return for the year the expenditure occurred. Send us a completed copy of Form T2038 (IND) if the trust: earned an ITC in the tax year is carrying forward a credit had an ITC recapture is claiming refundable ITC in the tax year (on line 51 of the T3 return) Reduce the cost of eligible investments and qualified expenditures by the portion of the credit deducted or refunded. Reduce these costs in the year after the trust: claims the credit acquired the asset if it: made the claim or refund in the year of acquisition applied the claim to a previous year For example, the capital cost of property is reduced in 2023 by any ITC that the trust earned in 2022, and that was claimed or refunded on the 2022 return or applied to a previous year. You will have to report an ITC recapture for the trust if the trust meets the following conditions: acquired the property in this or any of the previous 11 tax years claimed the cost, or a portion of the cost, of the property as a qualified expenditure for scientific research and experimental development included the cost, or a portion of the cost, of the property in calculating the trust's ITC, or was the subject of an agreement to transfer qualified expenditures disposed of the property or converted it to commercial use after February 23, 1998 Note An ITC recapture on a portion of the cost of property as described above applies only to dispositions that occur after December 20, 2002. For 2016 and subsequent tax years, only a graduated rate estate and a communal organization that is treated as a trust can designate all or part of its deductible ITC amount to one or more of its beneficiaries, taking into consideration the terms of the trust. For these trusts, when calculating their ITC to be claimed in the year, do not include the amount designated on line 941 of Schedule 9. Reduce the cost of the qualified property acquisitions or expenditures by the amount of any ITC that you designated to the beneficiaries in the tax year. For more information, see Form T2038(IND). Line 32 – Additional tax on RESP accumulated income payments If you received an accumulated income payment from a registered education savings plan (RESP) in the year, you may have to pay an additional tax on all or part of the amount in box 40 of your T4A slip. If this is the case, complete Form T1172, Additional Tax on Accumulated Income Payments from RESPs. Enter the amount from line 13 on line 32 of Schedule 11. For more information, see Information Sheet RC4092, Registered Education Savings Plans. Line 34 – Refundable Quebec abatement ▲ A trust may be entitled to an abatement of 16.5% of its basic federal tax. If the trust was resident in Quebec on the last day of its tax year and it did not have income from a business with a permanent establishment outside Quebec, complete line 34. Use Form T3MJ, Provincial and Territorial Taxes – Multiple Jurisdictions, to calculate the refundable Quebec abatement if one of the following situations applies to the trust: the trust was a resident in Quebec and had income from a business with a permanent establishment outside Quebec the trust resided outside Quebec and had income from a business with a permanent establishment in Quebec Enter the result on line 34 of Schedule 11.
You may be able to claim a dividend tax credit on line 40425 for dividends that you received from taxable Canadian corporations. Special rules apply for income from property (including shares) that one family member lends or transfers to another.
How can the Canada Dividend Tax Credit help reduce your tax payable? The Federal Dividend Tax Credit provides eligible and non eligible dividends with a reduction in tax. Learn how to calculate your Dividend Tax Credit and more.
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Oct 31, 2024 · There are three ways to access a blank T5 Slip : Download a PDF at CRA’s website at the PDF link. Note that there is a fillable version which means the slip can be directly edited from your computer rather than having to write in the amounts by hand. Use WebForms which is provided at the CRA link for all forms that can be filed directly.
The dividend tax credit is a non-refundable tax credit which applies when Canadian dividends are included in income. Foreign dividends do not qualify for the dividend tax credit. Both dividend tax credits are claimed on Line 40425 on the federal personal income tax return.
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Nov 10, 2023 · You can then claim your dividend tax credits on line 40425. Taxing dividends vs. capital gains in Canada. Dividends and capital gains are not taxed the same way; each has its own tax rules and rates. Capital gains: Only half of capital gains is included in your taxable income when you file your taxes. This means that if you realize a capital ...
