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

1.2 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, if it has income tax payable for that year.

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 when 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, but 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.

NOTE 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 if it was resident in Canada immediately before it ceased to exist.

1.2.1 Resident trust or deemed resident trust

All resident trusts or deemed resident trusts are subject to Québec income tax.

The term "resident trust" means any trust described in section 1.7 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 section 1.2.2.

As a rule, a resident trust or a deemed resident trust must file an income tax return for any taxation year for which it has income tax payable.

22, 25

However, such a trust must also file an income tax return even if the amount of income tax is nil in the following situations:

• The trust has no income tax payable for the year only because it is deducting a loss from a previous year.

• The trust is required to report a capital gain for the year, or sold property in the year.

• The trust granted a benefit with a value of more than $100 to a beneficiary for upkeep expenses, maintenance expenses or taxes related to property used by the beneficiary (see the instructions for line 74).

• The trust received income, gains or profits intended for a beneficiary that is an individual resident in Québec or a corporation with an establishment in Québec, and its total income, as entered on line 63 of the trust return, exceeds $500, or the income to be allocated to a beneficiary exceeds $100.

• The trust is not an excluded trust (see the definition in Part 6) and, as applicable:

  • in calculating its income, the trust is deducting an amount allocated to a beneficiary (that is, an amount referred to in points 1, 2, 4 and 5 of section 5.3.1) that exceeds $100, whether or not the beneficiary is resident in Québec,

  • on the last day of the taxation year, the trust is resident in Québec and the total of the cost amounts of property it owns at some time in that year exceeds $250,000, or

  • on the last day of the taxation year, the trust is not resident in Québec and the total of the cost amounts of property that it owns at some time in that year and uses in carrying on a business in Québec exceeds $250,000.

• The trust is an amateur athlete trust (see "Amateur athlete trust" in section 1.7).

• The trust is deemed to have been established by a religious organization that elected to allocate all of its income to its beneficiaries (see "Religious organization" in section 1.7).

NOTE A trust that is, as a rule, exempted from filing an income tax return may have to file one (see section 1.2.5). A trust (other than an excluded trust) that is resident in Canada, outside Québec, at the end of a taxation year and that, at some time in the year, was the owner of a specified immovable (or a member of a partnership that owned such an immovable) must file form TP-646.1-V, Trust Information Return.

851.25, 905.1, 921.1, 997, 1000, 1087, 1089; 1086R57, 1086R69

1.2.2 Deemed resident trust

A non-resident trust, other than an exempt foreign trust (see the definition in Part 6), 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 (see the definition of these terms in Part 6).

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 (see the definition in Part 6). 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 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 (see the definition in Part 6), 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 section 3.2.2 for more information about this type of trust.

The presumption of residency does not apply to a non-resident trust that is designated as a qualified disability trust (QDT). For more information about this type of trust, see "Qualified disability trust" in section 1.7.

595(f), 596

Where 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 the note below);

• the tax treatment further to certain elections made in the federal income tax return (see sections 5.1.3, 5.3.2 and 5.3.3);

• 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.

NOTE When a resident trust pools its income to calculate the foreign income tax payable in the country where it is resident for a given taxation year, it must not include its income from Canadian sources. All foreign income of a deemed resident trust is deemed to be from the foreign country in which the trust is resident at the end of the taxation year or immediately before the trust ceased to exist (if it ceased to exist in the year), and all foreign income tax paid by the trust for the year is deemed to have been paid to the government of that country.

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 following two elections may 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 (see the definition in Part 6).

Where a trust holds a non-resident portion in a taxation year in which the trust is a deemed resident trust, it may 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 may make an election, under federal legislation, to be an electing contributor (see the definition in Part 6). Where 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.

1.2.3 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 realized a taxable capital gain on taxable Québec property (by including in its income a provision deducted from a capital gain 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, 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.

26, 1000

NOTE A non-resident trust may be deemed to be a resident trust, and may therefore be required to file an income tax return. See the explanations in section 1.2.2.

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 (hereinafter referred to as a "specified trust") 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" in section 1.7 and section 5.6.

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 section 5.1.2.2.

1.2.4 Income tax instalments

A trust 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.

Note that testamentary trusts (except GREs) are no longer entitled to an exemption from income tax instalments.

We send form TPZ-1026.F-V, Instalment Payments Made by a Trust, to trusts that must pay income tax instalments to notify them of the amount of the instalments. If you wish to calculate the amount of instalments the trust must pay, you can obtain form TP-1026.F-V, Calculation of Instalment Payments to Be Made by Trusts, from our website. However, if you calculate the amount of instalments the trust must pay and that amount is insufficient, the trust may be required to pay interest.

Note that if the trust is required to make instalment payments for 2020, we will charge interest, compounded daily, on any payment (or portion thereof) that is not made by the required date.

SIFT trust

A SIFT trust (see "Specified investment flow-through trust (SIFT trust)" in section 1.7) 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.

1025-1027

1.2.5 Exemption from filing the trust income tax return

As a rule, trusts that are not listed in section 1.7 are exempt from filing the Trust Income Tax Return (form TP-646-V).

998

This is the case for the following trusts:

• a trust established under an RRSP or a 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);

905.1, 919-921.2, 961.12-961.16.1

• a trust established under a TFSA, 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);

NOTE

Where a trust established under a TFSA is required to pay income tax on business income, the trust and its legal representative (TFSA trustee) are solidarily liable for the payment of the income tax.

As of 2019, the TFSA holder must also pay income tax on the income from a business operated by a trust established under a TFSA. The solidary liability of a trustee of a TFSA at any time in respect of business income earned by the TFSA will be limited at all times to the property held in the TFSA at that time plus the amount of all the distributions of property from the TFSA as of the date on which the notice of assessment was issued.

935.21-935.23

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

857, 859, 860, 863-868

• a trust established under a DPSP, an RPP or an RSUBP;

880

• a trust established under a PRPP (or a VRSP), except if the trust must pay income tax on income derived from the operation of a business (see the note below);

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

209.1, 209.3, 890.5, 890.8

• a trust established under an RESP, except if a special tax is payable under Part III.15.1 of the Taxation Act (such a trust must nonetheless file RL-1 slips for accumulating income payments and educational assistance payments).

Since March 23, 2017, the trust has been required to pay income tax on an amount that would correspond to its taxable income for the year under Part I of the Taxation Act if its income or losses were derived solely from its non-qualifying investments and its capital gains or losses were derived solely from the disposition of non-qualifying investments;

901, 904, 904.1, 1129.66.2, 1129.66.4-1129.66.6

• a trust established under an RDSP, except if income tax is payable under Part I of the Taxation Act on, for example, the income or capital gain derived from the disposition of a non-qualifying investment (such a trust must nonetheless file RL-1 slips for disability assistance payments). Since March 23, 2017, the trust has been required to pay income tax on an amount that would correspond to its taxable income for the year under Part I of the Taxation Act if its income or losses were derived solely from its non-qualifying investments and its capital gains or losses were derived solely from the disposition of non-qualifying investments;

905.0.9-905.0.12, 905.14

• an environmental trust maintained to finance the reclamation in Québec of a site used principally as a waste disposal site, for the operation of a mine or pit from which was extracted clay, peat, sand, shale or aggregate materials, or for the operation of a pipeline (such a trust that is resident in Québec at the end of the taxation year must nonetheless file form TP-1129.53-V, Income Tax Return for Environmental Trusts);

IMPORTANT At the time a trust ceases to be an environmental trust: its taxation year is deemed to end immediately before that time; it is deemed to have disposed of all of its property at its FMV immediately before that time and to have reacquired it immediately after that time at a cost equal to the proceeds of disposition; and it ceases to be exempt from the requirement to pay income tax under Part I of the Taxation Act.

692.3, 736, 736.0.2, 736.0.3.1, 999.1, 1129.51-1129.54

• 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).

979.21

NOTE The capital gain (or loss) derived from the disposition of property used in the operation of a business is deemed to be business income (or loss). No deduction can be claimed on line 81 for the portion of income paid or payable to a beneficiary.

The following entities are also exempt from filing an income tax return:

• 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 one of the following apply:

• the taxable dividends, interest, rentals or royalties that the entity received or was entitled to receive during its fiscal period totalled 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.

985.23, 995, 996, 997.1