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Form T3 SCH 1, Dispositions of Capital Property (Schedule 1)

Federal Form T3 SCH 1, Dispositions of Capital Property (Schedule 1)

If the trust disposed of capital property in the year, see Guide T4037, Capital Gains, for the general rules regarding capital gains and losses. The CRA explains the rules that relate to trusts in this section.

Fill out Schedule 1 and send 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). For more information, read the section Form T1055, Summary of Deemed Dispositions.

Transfer the amount of any taxable capital gains from line 25 of Schedule 1 to line 1 of the T3 return.

A disposition of capital property includes any of the following:

Notes

The CRA does 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.

The distribution or exchange of property includes distributions to beneficiaries and rollovers reported on T2057 Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation or T2059 Election on Disposition of Property by a Taxpayer to a Canadian Partnership.

A Canadian resident trust may allocate and designate all or a portion of its net taxable capital gains in respect of the disposition of qualified farm or fishing property (QFFP) or qualified small business corporation shares (QSBCS), or the portion of a capital gains reserve on such property which is included in the trust's income in the current year, to a beneficiary who is an individual. The beneficiary is deemed to have realized a taxable capital gain from the disposition of the qualified property. As a result, a beneficiary who is an individual (other than a trust) may be eligible to claim the lifetime capital gains deduction under section section 110.6 of the Act.

Where the trust is reporting a disposition of QFFP, or QSBCS which occurred in 2024 in its 2025 taxation year and the trust is allocating and designating the net taxable capital gains from such a disposition to a beneficiary on a 2025 T3 slip, you must indicate on a T3 slip whether the disposition occurred before June 25, 2024 or after June 24, 2024 by way of footnote to either Box 55 (for QFFP) or Box 57 (for QSBCS). For more information, read How to fill out the T3 slip.

Form T3SCH 9, Income Allocations and Designations to Beneficiaries (Schedule 9), has been updated. The taxable gains from the disposition of qualified farm or fishing property (QFFP) and qualified small business corporation shares (QSBCS) must continue to be reported separately for the purpose of calculating the capital gains deduction:

  • Box 55 of the Form T3SCH 9 reports capital gains eligible for deduction from dispositions of QFFP.

  • Box 57 of the Form T3SCH 9 reports capital gains eligible for deduction from dispositions of QSBCS.

Certain gifts - zero inclusion rate

Generally, a trust's taxable capital gain from the disposition of capital property is 1/2 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 the following:

For more information, see Guide 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 the trust's 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, read the section "Capital gains realized on gifts of certain capital property" in Guide P113, and see Form T3 SCH 1A, Capital Gains on Gifts of Certain Capital Property (Schedule 1A) and Income Tax Folio S7-F1-C1.

Distribution of property to beneficiaries

If a personal trust distributes property (other than cash) to a beneficiary (to settle in whole or in part the beneficiary's capital interest in the trust), send the CRA a statement that includes all of the following information about the distributed property:

For more information about the distribution of property to a non-resident beneficiary, read the section Capital dispositions - Rules for trusts.

Graduated rate estate elections (losses)

If you are a legal representative administering the graduated rate estate (GRE) of a person who died on or after August 12, 2024, you may:

For deaths occurring before August 12, 2024, these elections may only be made in respect of the losses in the first tax year of the GRE.

The elections do not affect the return of the deceased person for any year before the year of death.

Due date of election and request to amend the final T1 return

In addition to filing the election, you are also required to file form T1ADJ, T1 Adjustment Request to request an amendment to the final T1 return of the deceased person to give effect to the election. The application of the losses to the deceased person's final tax year cannot be processed without this corresponding request to amend the final T1 return.

Both the election and request to amend the final T1 return must be filed by the later of:

When filing the T1ADJ to amend the final T1 return of the deceased person, you must clearly identify that you are making an election under subsection 164(6) or subsection 164(6.1).

Subsection 164(6) election

Generally, you can make this election for:

If you are making an election under subsection 164(6) for the graduated rate estate, send the CRA the following:

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.

Subsection 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)(e) 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 the deceased's legal representative may elect to treat an amount determined under subsection 164(6.1) as a loss of the deceased from employment for the year in which the person died.

If you are making an election under subsection 164(6.1) for the graduated rate estate, send the CRA the following:

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 ACB 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.

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 FMV at that time.

This rule does not apply to property that meets any of the following conditions:

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:

The trust or beneficiary can defer paying tax owing resulting from the deemed disposition by providing acceptable security.

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:

Canadian cultural property

For information on dispositions of Canadian cultural property, read the section "Selling or donating certified Canadian cultural property" in Guide T4037, Capital Gains, and see archived Interpretation Bulletin IT407R4 (consolidate d), Dispositions of Cultural Property to Designated Canadian Institutions, Guide 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 dispositions 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, the CRA generally considers the trust to have received proceeds of disposition equal to the "cost amount" of the property. The cost amount of capital property (other than a depreciable property) is its Adjusted cost base.

The cost amount of a depreciable property is calculated 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:

To elect under subsection 107(2.001), the trust must send a letter to the CRA with its T3 return for the tax year in which the property was distributed.

The letter should include all of the following information:

If you file an election, the CRA considers the trust, if resident in Canada, to have received proceeds of disposition equal to the 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:

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, the CRA considers the trust to have received proceeds of disposition equal to the property's FMV.

This also applies to both of the following trusts:

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, the CRA considers the trust to have received proceeds of disposition equal to the property's FMV.

For more information, read chapter 2 "Completing Schedule 3" in Guide T4037, Capital Gains.

Adjusted cost base (ACB)

This is usually the cost of the property plus expenses incurred to obtain it. The ACB 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-456R, Capital Property - Some Adjustments to Cost Base, and its Special Release (IT-456SR).

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, go to Tax treatment of mutual funds.

Note

If your ACB is reduced to an amount below zero at any time in the tax year, the CRA considers a deemed disposition to have occurred. The negative amount is deemed to be a capital gain and your ACB is reset to zero. For more information, read the section 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 this form 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. When calculating the capital gain or capital loss, you can deduct from the proceeds of disposition any outlays and expenses to the extent that they were made or incurred for the purpose of making the disposition.

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

You cannot claim outlays and expenses made or incurred in respect of deemed dispositions.

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