5.3 Schedule C - Summary of
Allocations and Designations
Schedule C is a summary of all amounts allocated to the trust's beneficiaries during the taxation year and, if applicable, designated according to type. In addition to completing this schedule, you must prepare an RL-16 slip in each beneficiary's name. This means that if you amend or cancel an RL-16 slip, you must file an amended Schedule C.
In this Schedule and in its instructions, the term "beneficiary" means any person to whom the trust must allocate income or a taxable capital gain. This person can be a beneficiary that holds an interest in the trust or a transferor to which the income attribution rule applies (see section 3.2), as well as the electing contributor of a deemed resident trust (see "Election to be an electing contributor" in section 1.2.2).
Enter, on the RL-16 slip for each beneficiary, the portion of trust income allocated to the beneficiary and, if applicable, the dividend tax credit and foreign income tax (refer to the Guide to Filing the RL-16 Slip: Trust Income (RL-16.G-V) for more information). If the trust is not a personal trust, enter the beneficiary's share in the cost base adjustment of capital interest in the trust (column 4 of line 417 of Schedule C).
657, 657.1
5.3.1 Allocations of amounts
When you allocate an amount to a beneficiary, you are stating the amount that the beneficiary is required to include in his or her income for the taxation year in which the trust's taxation year ends ("year concerned"). The amount may belong to one of the following types:
-
the portion of the trust's income that became payable in the year concerned to the beneficiary;
-
the portion of the trust's income paid in the year concerned (up to a reasonable amount) for upkeep and maintenance expenses or taxes for property used by the beneficiary in accordance with the terms of the trust deed;
-
the value of any other benefit granted to the beneficiary in the year concerned. Such a benefit cannot be deducted by the trust, and its inclusion on line 81 of the return is counterbalanced by the addition of an equivalent amount on line 75;
-
the portion of the trust's accumulating income for the year concerned that is allocated to the beneficiary (see section 5.3.3);
-
the portion of the trust's income for the year concerned allocated to a transferor covered by the income attribution rule or to the electing contributor of a deemed resident trust, as applicable.
The income allocated that is subject to specific designations must be entered on lines 400 through 405 of Schedule C. Amounts that are not designated must be reported on line 406. For more information, see "Designations of income and taxable capital gains" in section 5.3.1.1.
The total of the amounts allocated to the beneficiaries (line 410) can be deducted on line 81 of the trust's return, subject to certain restrictions (see points 2, 4 and 5 in section 5.3.1.2).
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NOTE
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661-663, 667
5.3.1.1 Designations
While the trust may designate certain amounts, in certain cases, it must designate others, such as the dividend tax credit, the foreign income tax credit and the cost base adjustment of a capital interest.
Designations of income and taxable capital gains
As a rule, income allocated by a trust to a beneficiary is considered to be property income derived from an interest in the trust.
However, the trust may designate certain income that it allocated to its beneficiaries, so that the source of the income is identified. For instance, a trust may designate income as a pension benefit allocated to the surviving spouse, as a taxable dividend paid by a Canadian corporation or as a capital gain.
The beneficiary may therefore claim the deductions or credits applicable to such income. For example, the beneficiary can:
-
claim the amount for retirement income;
-
claim the dividend tax credit;
-
claim the taxable capital gains deduction; or
-
include in his or her income only 50% of a capital gain.
A trust resident in Canada throughout the year may therefore designate income as:
-
taxable dividends from taxable Canadian corporations;
-
foreign non-business income;
-
income from an income-averaging annuity for artists;
-
net taxable capital gains;
-
foreign business income; and
-
capital losses (in the case of an insurance segregated fund trust).
Since 2016, the designation of certain benefits allocated by the trust to its beneficiaries has been limited to GREs that were resident in Canada throughout the year. Only this type of succession can designate income as:
-
pension benefits qualifying for a tax credit;
-
the portion of a death benefit from an office or employment that qualifies for an exemption;
-
retiring allowances that can be transferred;
-
single pension payment that can be transferred.
You must enter the designated income on the appropriate lines of Schedule C. The share of each beneficiary concerned must be entered in box A, B, C1, C2, D, E, F or G of the RL-16 slip. For more information, see section 5.3.4.
Designations of amounts as dividend tax credits, foreign income tax, income tax withheld from an income-averaging annuity for artists and donations allocated by a religious organization
If the trust designates income as taxable dividends from taxable Canadian corporations, it must then designate an amount as a dividend tax credit.
If the trust designates income as foreign income and it paid foreign income tax, it must designate an amount as foreign income tax.
If the trust designates income as income from an income-averaging annuity for artists, it must then designate an amount as income tax withheld.
The election made by a trust that is a religious organization to renounce the tax credit for donations and gifts in favour of certain of its members results in the designation of amounts as donations allocated by a religious organization.
Enter the designated amounts on the appropriate lines of Schedule C and the share of each beneficiary concerned in the appropriate boxes of the RL-16 slip. For example, enter:
-
on line 414, the dividend tax credit (box J of the RL-16 slip);
-
on line 415, the foreign income tax on business income (box K of the RL-16 slip);
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on line 416, the foreign income tax on non-business income (box L of the RL-16 slip);
-
on lines 421 and 422, the various foreign pension income (boxes B and D of the RL-16 slip);
-
on line 418, the gifts allocated by a religious organization (box N of the RL-16 slip); and
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on line 428, the split income not reported elsewhere on the RL-16 slip (Box G of the RL-16 slip).
Designation of an amount as cost base adjustment of a capital interest
The designation of an amount as cost base adjustment of a capital interest applies only to trusts that are not personal trusts. The amount to be designated as a cost base adjustment of capital interests may be positive or negative.
A positive adjustment generally corresponds to capital distributions, non-taxable benefits granted to beneficiaries and amounts designated under subsections 104(13.1) and 104(13.2) of the Income Tax Act (federal statute) (see section 5.3.2). Each beneficiary's share in the adjustment (positive amount in box M of the RL-16 slip) must be used to reduce the ACB of the beneficiary's capital interest in the trust.
A negative adjustment must be made by a mutual fund trust if, for example, it made an election under section 1121.1 of the Taxation Act. Each beneficiary's share in the adjustment (negative amount in box M of the RL-16 slip) must be used to increase the ACB of the beneficiary's units.
255(j.3), 257(n)(i.1), 651.1, 663, 666-668, 669.1, 669.2, 671, 1121.3
5.3.1.2 Exceptions and limits
Whether the trust reports income for itself or allocates income to the beneficiaries, it must comply with the terms of the will or trust deed, while taking into account certain fiscal restrictions, such as the following:
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A trust cannot allocate a loss to its beneficiaries, unless it is:
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a net capital loss, in the case of an insurance segregated fund trust;
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a loss sustained on transferred or loaned property or, in the case of a revocable or blind trust, a capital loss sustained on the disposition of the property.
-
467, 851.16
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A post-1971 spousal trust, an alter ego trust, a self-benefit trust or a joint spousal trust cannot deduct the portion of the allocated income referred to in points 1 and 2 of section 5.3.1:
-
if that portion is considered to be derived from the income or taxable capital gain realized on property (capital property, land included in the inventory of a business, or Canadian or foreign resource property) further to:
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the deemed sale of the property on the date of the spouse's death or, in the case of an alter ego trust or self-benefit trust, the settlor's death or, in the case of a joint spousal trust, the surviving spouse's death,
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the transfer of property to another beneficiary, where the spouse, settlor or surviving spouse, as applicable, is still alive;
-
-
if that portion is allocated to another beneficiary where the spouse, the settlor or the surviving spouse, as applicable, is alive throughout the year;
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if, for the year in which the spouse, settlor or surviving spouse dies, that portion is allocated to another beneficiary and that portion exceeds the income that the trust earned after the death.
-
657(a)(i)-(iii)
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A trust cannot deduct any allocated income referred to in points 1 and 2 of section 5.3.1 if the trust deed provides that a beneficiary may have a greater share of the trust's property than of its income. However, this restriction does not apply to a personal trust, an employee trust or a trust established under an employee benefit plan.
657.2
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A SIFT trust cannot deduct the non-deductible allocation amount. The amount deductible on line 81 of the return must not exceed the amount on line 173a of Schedule E.
657(a)(i) and (iv)
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A trust cannot deduct the amount of interest or dividends it receives from an investment corporation that is owned by persons that are not resident in Canada if the trust holds all its property on behalf of its non-residents.
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Since 2016, a trust to which property has been transferred in circumstances favoring the application of the rollover rule (as part of an eligible transfer or an eligible disposition) has not been able deduct the portion of the allocated income referred to in points 1 and 2 of section 5.3.1 for the taxation year during which the beneficiary dies.
454.2(b)(ii), 692.5
5.3.2 Income or taxable capital gain paid or that became payable in the year to a beneficiary, but reported by the trust
5.3.2.1 Election referred to in sections 663.1 and 663.2 of the Taxation Act
If the trust was resident in Canada throughout the year, it may have filed with the CRA, for that year, an election to make a designation of income pursuant to subsection 104(13.1) of the Income Tax Act (federal statute) or a designation of a taxable capital gain pursuant to subsection 104(13.2) of that Act.
If such an election is made, either section 663.1 or section 663.2 of the Taxation Act will apply to the calculation of the trust's income or taxable capital gain that was paid or that became payable to its beneficiaries during the year.
The income and capital gain concerned are not deemed paid nor to have become payable in the year to the beneficiaries. Consequently, these amounts must not be entered in Schedule C or on the RL-16 slips issued to the beneficiaries. As a rule, the amounts reduce the ACB of the beneficiaries' capital interest in the trust, unless the interest was acquired for no consideration and the trust was a personal trust.
Since the income designated pursuant to subsection 104(13.1) is not deducted on line 81 of the return, the trust can claim (on line 91) a non-capital loss from a previous year.
Similarly, since the capital gain designated pursuant to subsection 104(13.2) is not deducted on line 81 of the return, the trust can claim a net capital loss (line 92) or a non-capital loss (line 91). Regardless of the type of loss that is carried over, you must complete Part 3 of Schedule A to calculate the net taxable capital gains that are designated for the year.
Since 2016, there have been limits to the elections that can be made under subsections 104(13.1) and 104(13.2) of the Income Tax Act (federal statute), which allow the trust to designate, for a taxation year, a portion of its income that is not deemed paid and did not become payable to its beneficiaries. These designations can no longer be made if the trust's taxable income (taking into account the amounts of the designations) for the year is higher than zero.
Furthermore, where the beneficiary of an alter ego trust, a spousal trust, a joint spousal trust or a trust to which property has been transferred under circumstances that favor the application of the rollover rule dies during the year, no amount can be designated by the trust for a given year to any beneficiary other than the deceased beneficiary.
Complete Part 4 of Schedule C. Enclose a copy of all documents submitted to the CRA for the designations (for example, the trust's T3 return and the document showing the income covered by the designations under subsections 104(13.1) and 104(13.2)).
The deductible amount on line 81 must not exceed the result of the following calculation:
A - B, where
A represents any income or taxable capital gain that the trust must allocate to the beneficiaries for Québec income tax purposes without the consequences of subsections 104(13.1) and 104(13.2);
B represents the total of the designations under these subsections.
663.2.1
5.3.2.2 Election referred to in section 688.1.1 of the Taxation Act
The trust can make the election referred to in section 688.1.1 of the Taxation Act to report as its own any taxable capital gain paid or payable during the year to its beneficiaries if the following conditions are met:
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the capital gain resulted from a transfer of property to one of its beneficiaries while the trust was resident in Canada;
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the transfer was made under the circumstances described in point 7 of section 5.1.1 (see "Transfer of property at its FMV").
This election is made under paragraph 107(2.11)(a) or paragraph 107(2.11)(b) of the Income Tax Act (federal statute). No such election can be made for Québec income tax purposes unless it is made with the CRA, in which case it is automatically deemed to be made. If the trust has filed this election with the CRA, you must send us proof that the election was made and written notification within 30 days after the date the election was made or after the filing deadline for the return, whichever is later.
5.3.3 Accumulating income allocated to a preferred beneficiary
When the trust files its federal income tax return for a given taxation year, it can make a joint election with a preferred beneficiary to have some or all of its accumulating income allocated to the beneficiary. In such a case, you must enter the lesser of the following amounts as income on the beneficiary's RL-16 slip:
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the amount that the trust elected to allocate and that is entered in the document submitted to the CRA;
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the allocated portion of the trust's accumulating income (see the explanations below under "Accumulating income") calculated on the basis of the ratio between the amount covered by the election submitted to the CRA for the preferred beneficiary and the total amount covered by all the elections submitted to the CRA for the trust's preferred beneficiaries.
You can deduct on line 81 the total of the amounts entered on the preferred beneficiaries' RL-16 slips.
Check the box on line 4 of Schedule C. Enclose a copy of all documents that you submitted to the CRA for the election, such as:
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the note proving the election was made, signed by the trustee and the preferred beneficiary (or his or her tutor), and showing the amount allocated;
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the note showing the calculation of the preferred beneficiary's share in the accumulating income of the trust, signed by the trustee.
Accumulating income
The accumulating income of a trust corresponds to the trust's income for the year (line 80 of the return), minus the total of the allocated income referred to in points 1, 2, 3 and 5 of section 5.3.1. Certain amounts must then be subtracted from the result obtained, such as:
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in the case of a spousal trust, an alter ego trust or a joint spousal trust, all income (or losses) and all capital gains (or capital losses) resulting from:
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the deemed sale of property (capital property, land included in the inventory of a business, or Canadian or foreign resource property) upon the death of the spouse, the death of the individual whose death results in the deemed sale (in the case of an alter ego trust) or the death of the surviving spouse (in the case of a joint spousal trust), or
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the transfer of such property to a beneficiary other than the spouse during the spouse's lifetime;
-
-
amounts from a NISA Fund No. 2, except those received by a spousal trust during the spouse's lifetime;
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in the case of a testamentary spousal trust where the beneficiary spouse died in the year, the amount deemed paid to the trust regarding the balance (determined on the date of death) of a NISA Fund No. 2.
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NOTE
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657(b), 658-659.1
5.3.4 How to complete Schedule C
Part 1 of Schedule C is used to report the income allocated (and, if applicable, designated) to the beneficiaries.
Complete:
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Part 2 if you are required to report other amounts designated as income, foreign income tax, a dividend tax credit or the cost base adjustment of a capital interest in the trust;
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Part 3 if you are required to report the allocated income (or losses) for which additional information must be provided on the RL-16 slip;
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Part 4 if you are required to provide the name of the transferor (line 435) to which the income attribution rule applies, or the name of the electing contributor (line 436) and, if applicable, the total amount of income and taxable capital gains (line 440) and the portion of this amount (line 441) that is designated under subsection 104(13.1) or subsection 104(13.2) of the Income Tax Act (federal statute).
Beneficiaries resident in Canada (columns 1 and 2 of Part 1)
Enter, by type of designated amount, the amounts allocated to beneficiaries resident in Canada in the appropriate column. The designated amounts must also be reported in the appropriate boxes of the RL-16 slip, based on each beneficiary's share of the amounts allocated.
Beneficiaries not resident in Canada (column 3 of Part 1)
Enter, by type, the amounts allocated to beneficiaries not resident in Canada in column 3. In this way, you can readily determine the source of the income retained by the trust.
When completing RL-16 slips for non-resident beneficiaries, do not take into account the source of allocated income. Enter only the total allocated income in box G of the RL-16 slip. However, if the trust was a mutual fund trust resident in Canada throughout the taxation year, you may designate the portion of this income corresponding to taxable capital gains, provided it is reasonable to consider that the gains are included in the beneficiaries' income.
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NOTE Since February 27, 2018, the cross-border anti-surplus-stripping rule applicable to corporations has applied to transactions involving a trust. The trust has to allocate its assets, liabilities and transactions to its beneficiaries based on the relative FMV of the beneficiaries' interests in the trust. For more information, see section 3.8. |
400 Designated net taxable capital gains
Enter the amount of the designated net taxable capital gains. The total of these gains (column 4) must correspond to the amount entered on line 250 of Schedule A.
Enter, in box A of the RL-16 slip of each beneficiary to whom taxable capital gains are being designated, the result obtained when the beneficiary's share of the amount in column 4 on line 400 is multiplied by 2. This is the actual amount (100%) of the beneficiary's capital gain.
Certain capital gains designated by a personal trust may qualify for a deduction for the beneficiary concerned. See the instructions for line 412 on page 118.
Foreign capital gains
Foreign income tax that the trust paid on a capital gain realized on the sale of foreign property may qualify for a foreign tax credit, either for the trust or for the resident beneficiaries to whom income is allocated as foreign capital gains. In the latter case, enter the total of these gains in column 4 on line 420 of Schedule C, and enter the beneficiary's share on the RL-16 slip. The beneficiary will use this information to calculate his or her foreign tax credit. For more information, consult the Guide to Filing the RL-16 Slip: Trust Income (RL-16.G-V).
Split income
A capital gain that constitutes split income is deemed a taxable dividend other than an eligible dividend (see the definition of the term "split income" in Part 6) if the beneficiary has not reached the age of 18 before the end of the year. Consequently, you must enter in a blank box of the RL-16 slip either "A-2" (for a capital gain realized on shares of a private Canadian corporation) or "A-3" (for a capital gain realized on shares of a private foreign corporation), followed by the amount. If the capital gain that constitutes split income remains a capital gain, enter "A-4" in a blank box of the RL-16 slip, followed by the amount of the gain.
668, 668.3, 671, 671.1
401 Single pension payment
If the trust is a GRE that was resident in Canada throughout the taxation year, enter the amount allocated to a surviving spouse as a single payment from one of the following plans:
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an RPP;
-
a DPSP; or
-
a foreign retirement arrangement relating to services that the deceased person rendered while not resident in Canada.
This amount may qualify for a deduction if it is transferred to an RRSP, a PRPP, a VRSP or an RPP. Enter the amount in box B of the RL-16 slip issued to the surviving spouse.
317, 339(d), 885
402a and 402b Actual amount of eligible and ordinary dividends
Enter the actual amounts of eligible and ordinary dividends in column 1 or column 2, or in each column on lines 402a and 402b. You must also enter the amount from line 323 of Schedule B in column 3.
In the case of a SIFT trust, the amount in column 4 on line 402a must correspond to the amount on line 185 of Schedule E.
403 Retirement pension giving entitlement to a tax credit
If the trust is a GRE that was resident in Canada throughout the taxation year, enter any amount allocated to the surviving spouse as life annuity payments under a pension plan, an income-averaging annuity or an ordinary annuity.
Include any annuity related to services that the deceased person rendered while not resident in Canada. Carry the total amount to box D of the RL-16 slip issued to the surviving spouse, so that he or she can claim the amount for retirement income.
317(c), 317 (d), 669.1, 752.0.8
406 Other income
Enter all the amounts allocated, other than the amounts on lines 400 through 405. Enter each beneficiary's share in box G of the beneficiary's RL-16 slip, and enter any additional information in the blank boxes of the slip.
The income to be reported on line 406 includes:
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property income (such as interest, dividends and income from a rental property);
-
certain pension income;
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a death benefit paid under the QPP or the CPP;
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a death benefit paid to the beneficiary in recognition of the services rendered by the deceased person in the course of an office or employment, such as an amount for accumulated sick leave (see the instructions for line 61);
-
a retiring allowance;
-
a single payment from an RPP (other than a payment from a foreign RPP or a foreign retirement arrangement for services that the deceased person rendered while not resident in Canada that is allocated to the surviving spouse, which must be reported on line 401);
-
an income-averaging annuity for artists;
-
business income, other than foreign business income;
-
upkeep expenses and other benefits granted to a beneficiary.
For more information, refer to the Guide to Filing the RL-16 Slip: Trust Income (RL-16.G-V).
661-663, 669.2
411 Allowable capital losses - Insurance segregated fund trust, or revocable or blind trust
Enter the amount of allowable capital losses allocated to the beneficiaries by an insurance segregated fund trust or a revocable or blind trust (see point 1 in section 5.3.1.2).
Multiply each beneficiary's share of the amount in column 4 on line 411 by 2 and enter the result (preceded by a minus sign [-]) in box A of each beneficiary's RL-16 slip. This is the actual amount (100%) of the capital loss.
412 Net taxable capital gains giving entitlement to a deduction
If the trust is a personal trust that is designating all or part of the capital gains allocated to beneficiaries as taxable capital gains, it must also enter on line 412 the amount of designated gains that qualifies for a deduction. The eligible gains are those realized on qualified property (qualified farm or fishing property or qualified small business corporation shares).
Complete form TP-668.1-V, Taxable Capital Gains of a Trust That Give Entitlement to a Deduction (this form may also be used to calculate the CNIL). Then enter, in column 4 on line 412 of Schedule C, the lesser of the following amounts:
-
the total amount of the designated net taxable capital gains (column 4 on line 400 of Schedule C);
-
the amount of the taxable capital gains that give entitlement to a deduction (line 46 of form TP-668.1-V).
For each beneficiary to whom the gains are being designated, multiply by 2 the beneficiary's share of the amount in column 4 on line 412. Enter the result in box H of the beneficiary's RL-16 slip. This is the actual amount (100%) of the capital gain qualifying for a deduction.
Taxable capital gains on qualified property
The amount of the taxable capital gains realized on qualified farm or fishing property that give entitlement to a deduction corresponds to the lesser of the following amounts:
-
the total amount of the taxable capital gains on qualified farm or fishing property;
-
the amount in column 4 on line 412 of Schedule C.
The amount of the taxable capital gains realized on qualified small business corporation shares that give entitlement to a deduction corresponds to the lesser of the following amounts:
-
the total amount of the taxable capital gains on qualified small business corporation shares;
-
the amount in column 4 on line 412 of Schedule C, minus the amount of the capital gains on qualified farm or fishing property that give entitlement to a deduction (see the previous paragraph).
Enter the amount related to qualified farm or fishing property in column 4 on line 430 and the amount related to qualified small business corporation shares in column 4 on line 431 of Schedule C.
668.1, 668.2
413 and 414 Taxable amount of eligible and ordinary dividends and dividend tax credit
Enter, on the appropriate lines, the taxable amount of all eligible and ordinary dividends allocated to beneficiaries that are individuals (other than trusts that are charities) and the amount of the dividend tax credit.
Only beneficiaries that are individuals (including trusts) can claim a tax credit on the taxable amount of dividends from taxable Canadian corporations.
697, 767
417 Cost base adjustment of capital interest
Enter the amount of the change of capital in the trust (see the instructions under "Designation of an amount as cost base adjustment of a capital interest" in section 5.3.1.1).
418 Donations allocated by a religious organization
If the trust is a religious organization that elects to renounce the tax credit for donations and gifts in favour of its adult members, enter the total eligible amount of the donations subject to the tax credit.
851.33
428 Split income
Enter the total split income included in box G of the RL-16 slip of each beneficiary concerned.
429 Loss sustained on transferred or loaned property - Revocable or blind trusts
If the trust is a revocable or blind trust, enter the amount allocated to the beneficiary for the loss sustained on property transferred or loaned by the beneficiary to the trust (see point 1 of section 5.3.1.2).
Issue a separate RL-16 slip in the name of this beneficiary and enter in box G the amount of the loss, preceded by a minus sign (-).
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