Definitions

Definitions

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

In most cases, the amounts you allocate have to be included in the beneficiary's income, and they are deducted from the trust's income. For exceptions to this general rule, see "Exceptions and limits to income allocations" on page 56.

Arm's length - This refers to a relationship or a transaction between persons who act in their separate interests. An arm's length transaction is generally a transaction that reflects ordinary commercial dealings between parties acting in their separate interests.

"Related persons" are not considered to deal with each other at arm's length. Related persons include:

• Individuals connected by blood relationship, marriage, common-law partnership or adoption (legal or in fact)

• A corporation and a shareholder who controls the corporation

"Unrelated persons" may not be dealing with each other at arm's length at a particular time. Each case will depend upon its own facts.

Generally, a taxpayer and a personal trust (other than a specified trust described in "Chart 1 - Types of Trusts" on page 9) are deemed not to deal with each other at arm's length if the taxpayer, or any person not dealing at arm's length with the taxpayer would be beneficially interested in the trust.

It is a question of fact whether unrelated persons (other than a taxpayer and a personal trust) are dealing with each other at arm's length at a particular time. This could include situations involving unrelated individuals, trusts, partnerships or corporations. General criteria can be provided to determine whether there is an arm's length relationship between unrelated persons for a given transaction. However, each particular transaction or series of transactions must be examined on its own merits.

The following criteria have generally been used by the courts in determining whether parties to a transaction are not dealing at arm's length:

• Whether there is a common mind which directs the bargaining for both parties to a transaction

• Whether the parties to a transaction act in concert without separate interests. The fact that two or more parties act in a highly interdependent manner (in respect of a transaction of mutual interest) can be an indication of the fact that the parties are acting in concert and in the same interest and therefore are not dealing with each other at arm's length

• Whether there is de facto control

In any particular case, any one or more of the criteria may be of greater or lesser importance in the determination whether the parties are dealing at arm's length.

For more information in respect of "Arm's length," "Related persons," and "Unrelated persons," see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Beneficiary - This includes the person for whose benefit a trust is created, the person to whom the amount of an insurance policy or annuity is payable, or the unit holder of a mutual fund trust.

For the purposes of the trust reporting requirements, see "Identifying Beneficiaries" on page 73.

Controlling person - For purposes of the new trust reporting requirements, the term controlling person is described under "Schedule 15 - Beneficial Ownership Information of a Trust" on page 72.

Common-law partner - This refers to a person who is not your spouse with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies:

1. This person has been living with you in such a relationship for at least 12 continuous months

   Note
   In this definition, 12 continuous months includes any period you were separated for less than 90 days because of a breakdown in the relationship.

2. This person is the parent of your child by birth or adoption

3. This person has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support

Contribution of property - This generally refers to a transfer or loan of property, other than an arm's length transfer [as defined in subsection 94(1)] to a non-resident trust by a person or partnership. A contribution is also considered to have been made by a person or partnership where they make (or become obligated to make) a particular transfer (other than an arm's length transfer) as part of a series of transactions or events that includes another transfer or loan (other than an "arm's length transfer"), to the trust, by another person or partnership.

In these circumstances, the other transfer or loan is considered to be a contribution to the trust by the person or partnership only to the extent that the other transfer or loan can reasonably be considered to have been made for the particular transfer or loan, or the obligation to make the particular transfer or loan.

Deemed disposition - This term is used when you are considered to have disposed of property, even though you did not actually sell it.

Designate, designation - This is done to keep the identity of certain types of allocated income or credits. In this way, the beneficiaries can take advantage of deductions or credits that relate directly to the type of income, such as a dividend tax credit or pension income amount. Generally, you report amounts designated to a beneficiary in the appropriate box on a T3 slip.

Distribute, distribution - This refers to the division of trust property among the beneficiaries according to the terms of a trust document, or according to the applicable law.

Electing beneficiary - For a tax year of a qualified disability trust, this means an individual named as a beneficiary by the particular individual (that is the deceased individual) in the instrument under which a trust was created, and who meets all of the following conditions:

• includes in their return of income for the trust year, an election made jointly with the trust, that the trust will be a qualified disability trust for the trust year

• must be eligible for the disability tax credit for the beneficiary's tax year in which the trust's year-ends

• does not elect with any other trust to be a qualified disability trust for the other trust's tax year that ends in the beneficiary's tax year

Executor - An individual or trust institution appointed by a testator (named in their will) to administer their estate. The executor may be confirmed by a court. See the definition "Testator" on page 7.

Exempt property - This is trust property that, if disposed of, any income or capital gain resulting from the disposition is exempt from Canadian tax, either because the trust is not resident in Canada, or because of a tax treaty.

Express trust - A trust generally created with the settlor's express intent, usually made in writing (as opposed to a resulting or constructive trust, or certain trusts deemed to arise under the provision of a statute).

Gift - This is generally a voluntary transfer of property (including money) without valuable consideration. However, a transfer of property where the donor receives an advantage may still be considered a gift where the advantage does not exceed 80% of the fair market value of the transferred property, or the Canada Revenue Agency is satisfied the property was transferred with the intention of making a gift.

Generally, the eligible amount of a gift or monetary contribution is the amount by which the fair market value of the gifted property exceeds the amount of the advantage, if any, in respect of the gift. There may be situations where the eligible amount may be deemed to be nil or the fair market value may be deemed to be less than the actual fair market value. For more information, see Guide P113, Gifts and Income Tax, and Income Tax Folio S7-F1-C1, Splitreceipting and Deemed Fair Market Value.

The advantage is generally the total value of any property, service, compensation, use, or any other benefit that the trust, or a person or partnership not dealing at arm's length with the trust, has received, obtained or enjoyed, or is entitled to as partial consideration for, in gratitude for, or in any other way related to the gift. The advantage may be contingent or receivable in the future.

Legal representative - An individual or organization appointed by a legal document (for example, testator's will or court order). Includes: administrator, executor, liquidator, and trustee.

Liquidator - In Quebec, the liquidator is responsible for distributing the assets of all estates established after December 31, 1993. For estates with a will, the liquidator's role is similar to an executor's. For estates without a will, the liquidator acts as the administrator of the estate.

Listed trust - refers to the situations or trust types provided in paragraphs 150(1.2)(a) to (o) of the Act. For more information, see "Listed Trusts" under "Who should file" on page 18.

Period 1 - means the period in the trust's tax year before June 25, 2024.

Period 2 - means the period in the trust's tax year after June 24, 2024.

Preferred beneficiary - A person resident in Canada who is a beneficiary under the trust at the end of the year, and who meets one of the following conditions:

• they qualify for the disability amount for the tax year that ends in the trust's tax year

• they:

  • are 18 years of age or older before the end of the tax year

  • are a dependant of another individual for the tax year because of a mental or physical impairment

  • have income for the tax year, not including income from a preferred beneficiary election, which does not exceed the maximum basic personal amount

In addition, they must be one of the following:

• the settlor of the trust (see the definition "Settlor" on this page)

• the spouse or common-law partner, or former spouse or common-law partner, of the settlor of the trust

• a child, grandchild, or great-grandchild of the settlor of the trust

• the spouse or common-law partner of a child, grandchild, or great-grandchild of the settlor of the trust

Principal residence - Generally means any of the following:

• a housing unit

• a leasehold interest in a housing unit

• a share of a co-operative housing corporation, if the share is acquired for the sole purpose of obtaining the right to live in a housing unit owned by that corporation

For more information, see "Principal residence" on page 47.

Qualifying individual - A qualifying individual, for a taxation year in respect of a trust, means an individual who meets all of the following conditions:

• the individual is, in the year, any of

  (i) the settlor of the trust,

  (ii) the child, grandchild, great grandchild, parent, grandparent, great grandparent, brother, sister, uncle, aunt, niece or nephew of the settlor or of the spouse or common-law partner or former spouse or commonlaw partner of the settlor, and

  (iii) the spouse or common-law partner or former spouse or common-law partner of any person described in (i) or (ii) above

• the individual is resident in Canada during the year

• the individual is eligible for the disability tax credit

Settlor - Generally, this means the person who set up a trust by contributing property to the trust. In the case of a preferred beneficiary election, a settlor is restricted to a person who is otherwise the settlor of the trust and has contributed the majority of property to the trust. See "Schedule 15 - Beneficial Ownership Information of a Trust" on page 72 for further information in respect of the meaning of "settlor" for the purposes of the trust reporting requirements.

Spouse - This applies only to a person to whom you are legally married.

Testator - This is the deceased person who made and left a valid will.

Trust - A binding obligation enforceable by law when undertaken. It may be created by one of the following:

• a person (either verbally or in writing)

• a court order

• a statute

Generally, a trust is created when it is properly established and there is certainty of:

• the intent to create a trust

• the property to be placed in trust

• the beneficiaries of the trust

  Note
  For purposes of the requirement to provide beneficial ownership information on Schedule 15, a trust includes an arrangement under 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. These arrangements are generally known as "bare trusts." This reporting requirement also applies in respect of a trust that is a bare trust; however, see "Bare trusts filing relief for 2023 and 2024" in "What's new for 2024" on page 3. See "Schedule 15 - Beneficial Ownership Information of a Trust" on page 72.

Trustee - An individual or trust institution that holds legal title to property in trust for the benefit of the trust beneficiaries. The trustee includes an executor, administrator, assignee, receiver, or liquidator who owns or controls property for some other person.

Vested interest - An immediate fixed interest in property, although the right of possession and enjoyment may be postponed.

Will - A legally enforceable document that declares the intentions about disposal and administration of the testator's estate after their death. It is effective only at death and can be revoked at any time before death.

The meaning of certain terms

List of certain terms and acronyms

Term	Refers to
SIN	Social insurance number
TTN	Temporary tax number
ITN	Individual tax number
BN	Business number
TN	Trust number

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