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 us all information slips received. For more information, see "Lines 7 to 12 - Other investment income" on page 50.
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.
Thin capitalization - Rules for trusts
The scope of the application of the thin capitalization rules will be extended to:
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Canadian-resident trusts
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non-resident corporations and trusts that operate in Canada
These measures will also apply where a Canadian-resident trust or a non-resident trust is a member of a partnership.
Canadian resident trusts
A trust's "equity" for the purposes of the thin capitalization rules will generally consist of contributions to the trust from specified non-residents plus the tax-paid earnings of the trust, less any capital distributions from the trust to specified non-residents. The permitted 1.5-to-1 debt-to-equity ratio will remain unchanged.
Trust beneficiaries will be used in place of shareholders for the purpose of determining whether a person is a specified non-resident in respect of the trust and, therefore, whether a debt owing to that person is included in the trust's outstanding debt to specified non-residents. The current rules dealing with rights to acquire shares in determining who is a specified shareholder will be modified to address discretionary powers.
Where interest expense of a trust is not deductible as a result of the application of the thin capitalization rules, the trust will be entitled to designate the non-deductible interest as a payment of income of the trust to a non-resident beneficiary (i.e., the recipient of the non-deductible interest). In such a case, the trust will be able to deduct the designated payment in computing its income, but the designated payment will be subject to non-resident withholding tax under Part XIII of the Act and potentially tax under Part XII.2, depending on the character of the income earned by the trust.
The thin capitalization rules apply to partnerships in which a Canadian resident trust is a member. As with debt owed directly by the trust, where these rules result in an amount being included in computing the income of a trust, the trust is entitled to designate the included amount as having been paid to a non-resident beneficiary as income of the trust.
Since some trusts may not have complete historical information, any trust that exists on March 21, 2013 are able to elect to determine the amount of its equity for thin capitalization purposes as at March 21, 2013 based on the fair market value of its assets less the amount of its liabilities. Each beneficiary of the trust would then be considered to have made a contribution to the trust equal to the beneficiary's share (determined by reference to the relative fair market value of their beneficial interest in the trust) of this deemed trust equity.
Contributions to the trust, tax-paid earnings of the trust and distributions from the trust on or after March 21, 2013 would then increase or decrease (as appropriate) trust equity for thin capitalization purposes.
This measure applies to tax years that begin after 2013 and applies with respect to existing as well as new borrowings.
Non-resident trusts
Since a Canadian branch is not a separate person from the non-resident corporation or trust, the branch does not have shareholders or equity for purposes of the thin capitalization rules. Therefore, the thin capitalization rules for non-resident corporations and trusts will differ from the rules for Canadian-resident corporations in certain respects. For example, a debt-to-asset ratio of 3-to-5 will be used, which parallels the 1.5-to-1 debt-to-equity ratio used for Canadian-resident corporations.
A loan that is used in a Canadian branch of a non-resident corporation or trust will be an outstanding debt to a specified non-resident for thin capitalization purposes if it is a loan from a non-resident who does not deal at arm's length with the non-resident corporation or trust.
A non-resident corporation or trust that earns rental income from certain Canadian properties may elect to be taxed on its net income under Part I rather than being subject to non-resident withholding tax under Part XIII on its gross rental income. The election allows the non-resident to compute its taxable income as if it were a resident of Canada, with such modifications to the tax rules as the circumstances require. Where an election is made, the thin capitalization rules for non-resident corporations and trusts, rather than those for Canadian residents, will apply in computing the non-resident's Part I tax liability.
The thin capitalization rules apply to partnerships in which a non-resident corporation or trust is a member. Any income inclusion for a non-resident partner that arises as a consequence of the application of the thin capitalization rules is deemed to have the same character as the income against which the partnership's interest deduction is applied.
This measure applies to tax years that begin after 2013 and applies with respect to existing as well as new borrowings.
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