3.2 Obligation to file the Trust Income Tax Return (form TP-646-V)

3.2 Obligation to file the Trust Income Tax Return (form TP-646-V)

As a rule, a trust subject to Québec income tax for a given taxation year must file form TP-646-V, Trust Income Tax Return.

A trust subject to Québec income tax is a trust that is resident in Québec or carries on economic activities in Québec (for example, operating a business in Québec or disposing of a taxable Québec property).

As a rule, we consider that a trust is resident in Québec or in Canada if the trustee is resident in Québec or in Canada. However, we may consider that a trust is resident in Québec even if the trustee is not resident in Québec, if it is shown that a large portion of the control and administration of the trust's property is entrusted to a person, other than the trustee, who is resident in Québec.

Where certain legislative provisions apply only if the trust was resident in Canada throughout the year, the trust is deemed to have met this condition provided it was resident in Canada immediately before it ceased to exist.

3.2.1 Resident trust or deemed resident trust

All resident trusts and deemed resident trusts are subject to Québec income tax and, as a rule, must file an income tax return for every taxation year.

The term "resident trust" means any trust described under "Types of trusts" that is subject to Québec income tax for a given taxation year because it is in one of the following situations:

• It is resident in Québec at the end of the year.

• It is resident in Canada, outside Québec, at the end of the year and it operates a business in Québec during the year.

For information on deemed resident trusts, see Deemed resident trust.

Sections 22 and 25

A resident or deemed resident trust has to file an income tax return even if it has no income tax payable in the following situations:

• The trust has no income tax payable for the year solely because it carried forward a loss from a previous year.

• The trust has to report a capital gain on property it sold in the year.

• The trust granted a beneficiary a benefit valued at more than $100 for upkeep and maintenance expenses and taxes on property the beneficiary used (for more information, see the instructions for line 74).

• The trust received income, gains or benefits intended for a beneficiary who is an individual resident in Québec or a corporation that has an establishment in Québec, and the total income shown on line 63 of its return is more than $500 or the income attributable to the beneficiary is more than $100.

• The trust is a trust other than an Excluded trust and:

  • it is resident in Québec on the last day of the taxation year and is either a trust established otherwise than by law or judgment, or an express trust for common law purposes; or

  • it is resident outside Québec on the last day of the taxation year and is either a trust established otherwise than by law or judgment, or an express trust (for common law purposes) that carries on a business in Québec at any time during the year.

Sections 851.25, 905.1, 921.1, 997, 1000, 1086R57, 1086R69, 1087 and 1089

3.2.2 Deemed resident trust

A non-resident trust (other than an exempt foreign trust, is deemed to be a resident trust for a particular taxation year if, at the end of the year or immediately before the trust ceases to exist, it has a resident contributor or both a resident beneficiary and a connected contributor.

The contributor to a non-resident trust is a person that makes a contribution of property to the trust by means of a loan or transfer, other than an arm's length transfer). However, a person may also be considered to be a contributor to a trust if, as applicable:

• the loan or transfer (other than an arm's length transfer) of property by the person or the partnership of which the person is a member is to another person or partnership in circumstances where the loan or transfer generates, at that time, either an increase in the fair market value (FMV) of one or more properties held by the trust or a decrease in a known or contingent liability of the trust;

• the loan of property or the transfer of restricted property, other than an arm's length transfer, by the person or the partnership of which the person is a member is to another person or partnership and, at that time or at a later time, the trust holds property whose FMV is derived, in whole or in part, directly or indirectly, from property held by the other person or partnership.

If a non-resident trust is considered to be a revocable or blind trust for property it received, either directly or indirectly, from an individual resident in Québec or a corporation that has an establishment in Québec, the transfer or loan of the property to the trust is deemed to be a transfer or loan of restricted property. The trust may then be subject to the presumption of residency. See Revocable or blind trust for more information.

The presumption of residency does not apply to a non-resident trust that is designated as a qualified disability trust (QDT). For more information, see Qualified disability trust.

Sections 595(f) and 596

If the presumption of residency applies to a non-resident trust for a taxation year, the trust is deemed to be resident in Canada throughout the year. This presumption applies to:

• the calculation of income tax and the foreign tax credit (see "Income from Canadian and foreign sources" below);

• the tax treatment further to certain elections made in the federal income tax return (see Losses - Election referred to in section 1054 of the Taxation Act for the first taxation year of a GRE, Income or taxable capital gain that was paid or that became payable in the year to a beneficiary but was reported by the trust, and Accumulating income allocated to a preferred beneficiary);

• certain rules, such as the presumption concerning trust income for the benefit of a beneficiary under 21 years of age and the designation of certain income or capital gains allocated to the beneficiaries.

Such a trust will therefore have to file the Trust Income Tax Return (form TP-646-V) and RL-16 slips if it has a resident contributor or both a resident beneficiary and a connected contributor at the end of the taxation year. The trust and each resident contributor or beneficiary are solidarily liable in matters pertaining to the trust's fiscal rights and obligations.

The two elections listed below can be made to decrease the tax burden of a deemed resident trust.

Election to create a non-resident portion trust

The non-resident portion of a deemed resident trust corresponds to all property of the trust that is not part of the resident portion of the trust.

If a trust holds a non-resident portion in a taxation year in which the trust is a deemed resident trust, it can make an election, under federal legislation, to have the non-resident portion of the trust deemed to be held by another trust that is an inter vivos trust referred to as a "non-resident portion trust."

The election takes effect as of the first taxation year in which the deemed resident trust holds a non-resident portion.

As of that time, the following conditions apply to the trusts:

• The non-resident portion trust continues to exist until the deemed resident trust:

  • no longer has a resident contributor or a resident beneficiary;

  • becomes an exempt foreign trust;

  • ceases to exist; or

  • becomes resident in Canada.

• The terms that apply to the deemed resident trust also apply to the non-resident portion trust.

• The trustees of the deemed resident trust are the trustees of the non-resident portion trust.

• The non-resident portion trust is deemed to have neither a resident contributor nor a connected contributor.

The first taxation year of a non-resident portion trust corresponds to the taxation year of the deemed resident trust as of which the election applies.

Election to be an electing contributor

The resident contributor of a deemed resident trust can make an election, under federal legislation, to be an electing contributor. If a deemed resident trust has an electing contributor at the end of its taxation year (or at the time immediately before the trust ceases to exist), the portion of its income (calculated after any losses from other years are carried over) that is proportional to the total value of the electing contributor's contribution to the trust up to that time must be included as Canadian property income in calculating the contributor's income for the taxation year in which the trust's taxation year ends.

You must enter this property income on an RL-16 slip completed in the name of the contributor. You can deduct an amount equal to the property income amount on line 81 of the trust's income tax return.

If the trust paid foreign income tax on the income, it may make a designation in favour of the contributor to have the income deemed to be either foreign business income or foreign non-business income, as the case may be. The maximum income that may be designated must correspond to the trust's income from that source. The trust can therefore make another designation to have the foreign income tax paid on the income deemed to have been paid by the contributor.

The election to be an electing contributor is effective with respect to the trust and the contributor as of the contributor's taxation year that includes the moment of the election, or as of the taxation year that ends before this moment, and for all subsequent years.

3.2.3 Non-resident trust

A trust that was not resident in Canada at any time in a taxation year is subject to Québec income tax if, at some time in the taxation year, one of the following conditions is met:

• The trust carried on a business in Québec.

• The trust disposed of taxable Québec property.

• The trust disposed of taxable Québec property and included in its income a provision deducted in the previous year.

• The trust was a specified trust that owned a specified immovable or that was a member of a partnership that owned such an immovable (see "Specified immovable held by a non-resident trust" below).

• The trust owned property that it used in carrying on a business in Québec, and the total of the cost amounts of its property exceeded $250,000.

Such a trust must file an income tax return even if it has no income tax payable for the year. However, such a trust that carried on a business in Québec (and that does not meet any of the other conditions above) will not be required to file an income tax return if it has no income tax payable for a year, unless it has no income tax payable solely because it carried forward a loss sustained in a previous year.

Note that a non-resident trust may be deemed to be a resident trust, and may therefore be required to file an income tax return. For more information, see Deemed resident trust.

Sections 26 and 1000

Specified immovable held by a non-resident trust

An inter vivos trust that is not tax-exempt and that is not resident in Canada at any time in the year (referred to as a "specified trust" below) must pay income tax at a rate of 4.47% on the net income derived from the rental of a specified immovable (including the trust's share of such income from a partnership of which the trust is a member, if applicable). For more information, see Specified trust and Schedule F - Income Tax Payable by a Specified Trust for a Specified Immovable.

If such a trust becomes resident in Canada at some time in the year, any specified immovable that it owned at that time is deemed to have been disposed of immediately before it became resident in Canada for proceeds equal to the FMV of the immovable at that time. For more information, see Trust that becomes resident in Canada.

3.2.4 Income tax instalments

We send form "TPZ-1026. F-V, Instalment Payments Made by a Trust, to trusts that have to pay income tax instalments to notify them of the amount of the instalments. Trusts must make payments of more than $10,000 electronically (for example, online or through a financial institution), unless there is a specific reason they cannot. Failure to comply may result in a penalty.

A trust (with the exception of a GRE) must pay income tax instalments for the taxation year if:

• it estimates that its net income tax payable for the year will exceed $1,800; and

• its net income tax payable for one of the two previous years exceeded $1,800.

If the trust's principal source of income is farming or fishing, it must pay a single income tax instalment for the taxation year if:

• it estimates that its net income tax payable for the year will exceed $1,800; and

• its net income tax payable for the two previous years exceeded $1,800.

The net income tax payable for a given year corresponds to the income tax payable for the year minus the total income tax withheld and the refundable tax credits obtained for the year.

Quarterly instalments must be made by March 15, June 15, September 15 and December 15 of the year. Each instalment must be equal to a quarter of the estimated income tax payable for the year or of the income tax payable for the previous year. However, if a trust's principal source of income is farming or fishing, the trust must pay a single instalment by December 31 of the year. The instalment must be equal to two-thirds (2/3) of the estimated income tax payable for the year or of the income tax payable for the previous year.

If the trust wants to calculate the amount of its instalment payments itself, it can complete form TP-1026. F-V, Calculation of Instalment Payments to Be Made by Trusts. However, it may have to pay interest if it calculated the amount of its instalment payments itself and the amount turns out to be insufficient.

Note that if the trust is required to make instalment payments for 2025, we will charge interest, compounded daily, on any payment (or portion thereof) that is not made by the required date.

SIFT trust

A specified investment flow-through trust (SIFT trust) must calculate and make instalment payments of income tax as if it were a public corporation. Accordingly, the SIFT trust must make instalment payments on a monthly basis, by the last day of each month, if its estimated income tax payable for the year and its income tax payable for the previous year both exceed $3,000. For more information, see Specified investment flow-through trust.

Sections 1025 to 1027

3.2.5 Exemption from filing the trust income tax return

Certain trusts are exempt from filing the Trust Income Tax Return (form TP-646-V).

Section 998

This is the case for the following trusts:

• a trust established under a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF), except if it must pay income tax under Part I of the Taxation Act, such as:

  • income tax on income derived from the operation of a business or from a non-qualifying investment, or on the capital gain derived from the disposition of such an investment, or

  • income tax on the taxable income for any taxation year after the year that follows the year of death of the last annuitant of the plan or fund (the trust must file an RL-2 slip for any amount paid as a tax-paid amount);

Sections 905.1, 919 to 921.2 and 961.12 to 961.16.1

• a trust established under a tax-free savings account (TFSA) or a first home savings account (FHSA), except if the trust must pay income tax on income derived from the operation of a business or from a non-qualifying investment, or on the capital gain derived from the disposition of such an investment (the trust must file RL-1 slips for persons to whom it pays investment income earned following the death of the account holder);

Sections 935.21 to 935.23, 935.24.1 and 935.31 to 935.35

• a trust established under a profit-sharing plan (PSP) (the trust must nonetheless file RL-25 slips);

  Sections 855, 859, 860 and 863 to 868

• a trust established under a deferred profit-sharing plan (DPSP), a registered pension plan (RPP) or a registered supplementary unemployment benefit plan (RSUBP);

  Sections 880, 963 and 998(d)

• a trust established under a pooled registered pension plan (PRPP), including a voluntary retirement savings plan (VRSP), except if the trust must pay income tax on income derived from the operation of a business (see "RL-1 slips - Accumulated income and educational assistance payments" below);

  Sections 965.0.20 and 965.0.21

• a retirement compensation arrangement trust, except for the portion that constitutes an employee benefit plan;

  Sections 209.1, 209.3, 890.5 and 890.8

• a trust established under a registered education savings plan (RESP), except if:

  • a tax is payable under Part I of the Taxation Act with respect to property the trust holds that is not a qualifying investment for it or to a capital gain derived from the disposition of such property,

  • a special tax is payable under Part III.15.1 of the Taxation Act;

Sections 901, 901.1, 904, 904.1, 1129.66.2 and 1129.66.4 to 1129.66.6

• a trust established under a registered disability savings plan (RDSP), except if a tax is payable under Part I of the Taxation Act on certain loans it took out, due to the operation of a business, or with respect to property it holds that is not a qualifying investment for it or to a capital gain derived from the disposition of such property;

Sections 905.0.9 to 905.0.12 and 905.14

• an environmental trust, that is, a trust that is maintained solely to finance the reclamation in Canada of a site that is or has been used principally for one or more of the following purposes:

  • the operation of a mine,

  • the extraction of clay, peat, sand, shale or aggregates (including dimension stone and gravel),

  • the deposit of waste,

  • the operation of a pipeline, if the trust was created after December 31, 2011;

Sections 692.3, 736, 736.0.2, 736.0.3.1, 999.1 and 1129.51 to 1129.54

• a trust governed by an eligible funeral arrangement or a cemetery care trust (the trust must nonetheless file an RL-3 slip for any amount to be included in the income of a beneficiary).

  Section 979.21

The following entities are also exempt from filing the Trust Income Tax Return (form TP-646-V):

• a registered charity, which must nonetheless file form TP-985.22-V, Information Return for Registered Charities and Other Donees;

• a tax-exempt entity that is an agricultural organization, a board of trade (chamber of commerce), or a non-profit organization (club, society or association) that is not considered to be a charity.

However, the latter must file form TP-997.1-V, Information Return for Tax-Exempt Entities, if any of the following apply:

• the total amount of taxable dividends or the total amount of interest, rentals or royalties that the entity received or was entitled to receive during its fiscal period was more than $10,000;

• at the end of the previous fiscal period, the entity's total assets, determined according to generally accepted accounting principles, exceeded $200,000; or

• the entity was required to file form TP-997.1-V for a previous fiscal period.

Sections 985.23, 995, 996 and 997.1

5