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1.7 Types of trusts

A trust created by a person other than the deceased is not a testamentary trust.

A trust may lose its status as a testamentary trust further to one of the following events:

• The property or income of the trust was not distributed to beneficiaries in accordance with the terms of the will.

• The trust was created after November 12, 1981, and before the end of the taxation year, property was contributed to the trust otherwise than by succession.

• The trust was created before November 13, 1981, and:

  • after June 28, 1982, property was contributed to the trust otherwise than by succession; or

  • before the end of the taxation year, the FMV of all property that was contributed to the trust, otherwise than by succession, exceeds the FMV of the property that was contributed by succession (the FMV of the property is the value of the property at the time it was acquired by the trust, including property that was substituted for such property).

• Before the end of the taxation year, the trust incurs:

  • a debt (or any other obligation to pay an amount) owed to a beneficiary (or any person or partnership not dealing at arm's length with a beneficiary); or

  • a debt (or any other obligation to pay an amount) guaranteed by a beneficiary (or any person or partnership not dealing at arm's length with a beneficiary).

This restriction does not apply to a debt (or any other obligation) owed to a beneficiary and incurred in satisfaction of the beneficiary's right to enforce payment by the trust, before the debt is owed, of an amount on the trust's income, capital gains, or capital.

A testamentary trust keeps its status if it receives a contribution from another trust, provided the following conditions are met:

• The testamentary trust is a GRE.

• The income of the other trust became payable to the individual upon the death of the beneficiary of the testamentary trust as a result of a joint election made by the other trust and the legal representative who is administering the succession.

• The amount is paid to cover the income tax payable upon the death of the beneficiary of the trust.

• The amount paid does not exceed the income tax payable upon the death of the beneficiary of the trust.

NOTE A testamentary trust keeps its status if it receives a contribution that is either a qualifying expenditure for the federal home renovation tax credit from one of its beneficiaries, or a qualifying expenditure for the federal home accessibility tax credit from one of its beneficiaries.

A trust other than a testamentary trust is an inter vivos trust.

677, 677.1

Alter ego trust

An alter ego trust is a trust created after 1999 by an individual aged 65 or over. The individual has the exclusive right to receive all income from the trust. No other person, during the individual's lifetime, may receive or otherwise obtain the use of any part of the trust's income or capital.

The rollover rule may apply to transfers of property made to the trust by the settlor, in which case any immediate tax incidence can be avoided (refer to section 3.1.1).

However, such a transfer may be subject to the income attribution rule. In this case, the settlor, not the trust, may have to report the income (or loss) derived from the transferred property or the capital gain (or loss) derived from the subsequent disposition of the property (refer to section 3.2.2).

Since 2016, the following rules have applied to alter ego trusts for the taxation year during which the beneficiary dies:

• The trust's taxation year is deemed to end at the end of the day of death, and a new taxation year is deemed to begin at the start of the following day.

• The trust's income for the year is taxable in the trust's income tax return.

• The deadline for paying the trust's income tax and filing its income tax return and RL-16 slips is the 90th day of the year following the calendar year during which the trust's taxation year ended.

You must check box 28 of the trust income tax return if the trust is an alter ego trust and the beneficiary died in the taxation year concerned. You must also enter the date of the beneficiary's death.

652.1, 663.0.1

Amateur athlete trust

An amateur athlete trust is a trust created under an arrangement whereby funds are received for the benefit of an amateur athlete. However, to preserve the athlete's eligibility to compete in a sporting event sanctioned by an international sport federation, the funds must be held, controlled and administered by a registered Canadian amateur athletic association, in accordance with the rules of the federation.

If an athlete is a member of a registered Canadian amateur athletic association and they are eligible to compete in sporting events as a member of the Canadian national team, an amateur athlete trust can be created provided:

• an arrangement such as the one described above has been made;

• an arrangement has been made between the athlete and an issuer as described in the definition of "qualifying arrangement" (under subsection 146.2(1) of the Income Tax Act [federal statute]) establishing the trust as the receiver and manager of the athlete's qualifying performance income (income from endorsements, cash prizes and public appearances and speeches).

An amateur athlete trust is considered to have been created on the day on which the association or the issuer, as applicable, receives the first payment and the athlete becomes the beneficiary.

Under Part I of the Taxation Act, an amateur athlete trust is not required to pay income tax on its income. However, it must file an income tax return and an RL-16 slip to report the amounts paid to the athlete, or for the benefit of the athlete, during the year (refer to point 7 in the instructions for line 61).

End of the trust

If, over a period of eight years, the beneficiary did not compete in an international sporting event as a member of a Canadian national team, we consider that the trust ceased to exist at the end of the taxation year in which the eight-year period ended and that the trust allocated to the beneficiary an amount equal to the FMV of the property it held at that time. The eight-year period begins the year in which the athlete last competed in such an event or the year in which the trust was created, whichever is later. Where the trust is required under Part XII.2 of the Income Tax Act (federal statute) to pay income tax for the taxation year, the amount allocated to the beneficiary is reduced to 64% of the FMV of the trust's property at that time.

851.34-851.36, 998(n); 1086R57

Deemed trust

A usufruct, a right of use or a substitution is considered to be a trust. If the usufruct, right of use or substitution was established by will, the trust is considered to be a testamentary trust, and the property subject to the usufruct, right of use or substitution is considered to have been transferred to the trust on the death of the testator and as a consequence thereof.

Furthermore, an arrangement under which property is subject to rights and obligations is considered to be a trust if the arrangement is established by or pursuant to a written contract in which the parties express their intention to consider the arrangement as a trust within the meaning of Part I of the Taxation Act.

A person who has a right, whether immediate or future and whether absolute or contingent, to receive all or part of the income or the capital from the property referred to in the previous paragraph is the beneficiary of the trust in question.

Where a taxpayer makes a gift of a work of art or cultural property with reserve of usufruct or right of use to a qualified donee, the usufruct or right of use is not considered to be a trust where:

• the gift is made during the taxpayer's lifetime;

• the gift is not a gift of immovable property;

• the usufruct or right of use was established exclusively for the benefit of the taxpayer; and

• the donor was the sole owner of the property immediately before it was donated.

Such a gift may give rise to tax relief for the donor.

7.9-7.11

Employee benefit plan

An employee benefit plan is an arrangement under which an employer remits contributions to another person, referred to as the "custodian of an employee benefit plan," in order to pay benefits to employees, former employees or persons not dealing at arm's length with an employee or former employee, or to pay such benefits on their behalf.

The employer may deduct employer contributions to the plan only if they are distributed to the beneficiaries of the plan (that is the employees, or former employees, or their legatees by particular title) or their legal representatives. The beneficiaries must include in their income the amount of the benefits received during the year, minus the portion of this amount that constitutes their contributions to the plan.

An amount received by a beneficiary of the plan, who is a person not dealing at arm's length with an employee, is deemed to have been received by the employee if the beneficiary receives it by reason of the employee's office or employment and if the employee is alive at the time the beneficiary receives the amount.

As a rule, the benefits paid by the plan are considered to be employment income for the beneficiaries. They must be reported on RL-1 slips (rather than on RL-16 slips). The total amount of benefits must be entered on form RLZ1. S-V, Summary of Source Deductions and Employer Contributions. The RL-1 slips and form RLZ-1. S-V must be filed no later than the last day of February of the year following the year in which the benefits were paid.

If the employee benefit plan is a trust, the trustee must file a Trust Income Tax Return (form TP-646-V) in accordance with the usual rules. A statement of receipts and disbursements for the year must be enclosed with the return, and the receipts (contributions, investment income, etc.) and disbursements must be broken down by type. If, in the taxation year, a portion of the investment income is retained by the trust instead of being allocated to the employees, the trustee must report this income as dividends, taxable capital gains or other investment income, as applicable. This breakdown of income is necessary in order to calculate the dividend tax credit and the AMT, and to carry over net capital losses from other years.

If a trust constituted under an employee benefit plan becomes a retirement compensation arrangement (RCA) trust, it must still file an income tax return for the portion of the investment income attributable to the plan. The FMV of the plan's property immediately before the change is considered to be a payment out of the plan to the employees or former employees.

47.1-47.4, 47.6, 87(j.1), 135(c), 209.1-209.3, 890.5

Employee life and health trust

A trust is considered to be an employee life and health trust for a given taxation year if it meets all the following requirements throughout the year:

• The trust's only objectives are to:

  • provide employee benefits to current or former employees of one or more participating employers or former participating employers, or on their behalf, and

  • distribute, after the trust has been wound up, the remaining funds to the beneficiaries, other than key employees, according to their interest in the trust.

• All or substantially all of the total cost of the employee benefits applies to designated employee benefits.

• The trust meets either of the following conditions:

  • The trust is resident in Canada.

  • If the trust is not resident in Canada, benefits are provided to employees who are resident in Canada and to employees who are not resident in Canada, one or more participating employers are resident in a country other than Canada, and the trust is resident in a country in which one of the participating employers resides.

• Each beneficiary of the trust is either an employee or former employee of a participating employer or former participating employer, an individual related to an employee or former employee, or another employee life and health trust.

• The trust meets the conditions regarding the proportion of members that are key members.

• The rights of the key employees of a participating employer are not superior to the rights of most of the other beneficiaries.

• The only rights granted to a participating employer (or to a person not dealing at arm's length with the employer) are the following:

  • the right to designated benefits;

  • the right to enforce undertakings, warranties or similar obligations in order to:

    • maintain the trust as an employee life and health trust, or

    • prevent the trust from deducting the designated benefits that became payable during the taxation year because certain conditions were not met.

• The trust is administered in accordance with its terms and objectives.

The following rules apply to employee life and health trusts:

• The trust can deduct designated employee benefits that became payable by the trust in a taxation year. The deduction is included in the calculation of the non-capital losses for that year (refer to line 513a of Schedule D). However, no deduction is allowed if the benefits for which the contributions or premiums are provided would not be deductible in calculating the employer's income.

• Non-capital losses from one year can be carried back three years or forward seven years. However, the trust cannot carry non-capital losses to a year in which it does not meet one of the following conditions:

  • throughout that year, the trust does not meet all the conditions to be considered an employee life and health trust;

  • designated employee benefits that became payable by the trust in the given year cannot be deducted.

657, 657.1 (d), 727 (d), 727.1, 869.1-869.13

Employee trust

In general, an employee trust is an arrangement that the trustee, pursuant to federal legislation, has elected to qualify as an employee trust, under which an employer remits amounts to the trustee for the benefit of employees. If you have made such an election, it is automatically deemed to be made for the purposes of Québec legislation. You must send us proof that the election was made with the CRA and written notification no later than the filing deadline for the income tax return or 30 days after the election was made (whichever is later).

The contributions that the employer remits to the trustee can be deducted by the employer only if the election has been made.

To maintain its status as an employee trust, a trust must allocate to its beneficiaries (the employees), each year, all of its non-business income and all employer contributions for that year. The amounts are allocated as employment income and are taxable for the beneficiaries in the year of the allocation. The trust must report the amounts on RL-1 slips, rather than on RL-16 slips. The trust must also file form RLZ-1. S-V, Summary of Source Deductions and Employer Contributions, for these amounts. The RL-1 slips and form RLZ-1. S-V must be filed with us no later than the last day of February of the year following the end of the trust's taxation year.

47.1, 47.5, 47.7-47.9, 657, 657.1

646.0.1

Health and welfare trust

A health and welfare trust is a trust established by an employer for the purpose of providing health and welfare benefits to its employees. As the tax treatment of such a trust is not explicitly set out in the federal Income Tax Act, we have adopted the CRA's administrative policy for this type of trust to the end of 2021.

As of 2022, health and welfare trusts established before February 28, 2018, that were not converted into employee life and health trusts or wound up are subject to the normal income tax rules for trusts.

Transitional rules are in place for winding-up and conversion to employee life and health trusts.

A health and welfare trust can make one of the following elections:

• It can elect to be converted to an employee life and health trust.

• It can elect to transfer property to an employee life and health trust and have the rollover rules apply.

• It can elect to be deemed an employee life and health trust if it was created under a collectively-bargained plan and it does not yet meet the conditions to be an employee life and health trust. It will be deemed an employee life and health trust until no later than December 31, 2022.

If the trust makes any of these elections, it must enclose a letter with its income tax return to inform us.

Insurance segregated fund trust

Generally, at the time a segregated fund of an insurer is established, a trust called a "segregated fund trust" is considered to be created with respect to the fund. The property of the segregated fund and the income derived from it are deemed to be the property and income of the trust and the insurer is the trustee of the segregated fund trust.

An income tax return and financial statements must be filed together for each segregated fund.

If some of the segregated fund policies of the trust were held as an RRSP, a RRIF, an RPP, a PRPP, a VRSP or a TFSA, you must take into account in the return and schedules only the portion of the trust's income (and, where applicable, the trust's capital gain or loss) that is to be allocated to beneficiaries other than those that hold funds under such a plan or under a TFSA.

Otherwise, complete only Part 1 (lines 1 through 11 only) and Part 7 of the return.

Note that as of 2018, insurers can merge segregated funds on a tax-deferred basis. The rules that apply to the merger of segregated funds are generally the same as those that apply to the merger of mutual funds.

The non-capital losses of a segregated fund can be carried back and included in the fund's taxable income for a taxation year that begins after 2017. However, the use of these losses is subject to the normal limitations for carrying non-capital losses either forward or back.

The use of non-capital losses is restricted following a segregated fund merger, as is the case for mutual fund mergers.

851.1-851.3, 851.16, 851.19

Joint spousal trust

A joint spousal trust is an inter vivos trust created after 1999 by a spouse who was aged 65 or over at the time, or by both spouses if they were both aged 65 or over at the time. The spouses have the exclusive right, during their lifetimes, to receive all income from the trust. No other person, prior to the death of the surviving spouse, may receive or otherwise obtain the use of any part of the trust's income or capital.

The rollover rule may apply to transfers of property made to the joint spousal trust by the settlor, in which case there is no immediate tax incidence for the settlor. For more information, refer to section 3.1.1.

However, such a transfer may be subject to the income attribution rule. In this case, the settlor, not the spouse nor the trust, will have to report the income (or loss) derived from the transferred property or the capital gain (or loss) derived from the subsequent disposition of the property. For more information, refer to sections 3.2.1 and 3.2.2.

Since 2016, the following rules have applied to joint spousal trusts for the taxation year in which the beneficiary dies:

• The trust's taxation year is deemed to end at the end of the day of death, and a new taxation year is deemed to begin at the start of the following day.

• The trust's income for the year is taxable in the trust's income tax return.

• The deadline for paying the trust's income tax and filing its income tax return and RL-16 slips is the 90th day of the year following the calendar year during which the trust's taxation year ended.

You must check box 28 of the income tax return if the trust is a joint spousal trust and the beneficiary of the trust died in the taxation year concerned. You must also enter the beneficiary's date of death.

652.1, 663.0.1

Master trust

A trust may be considered a master trust if it makes an election to that effect (by enclosing a letter with its income tax return for its first taxation year) and if, since its creation:

• it has always been resident in Canada;

• its only undertaking has been the investment of funds;

• it has never borrowed money, unless the loan was for a period of 90 days or less and was not part of a series of loans or other transactions and repayments;

• it has never accepted deposits; and

• its only beneficiaries have been trusts governed by a DPSP, an RPP, a PRPP or a VRSP.

A trust that makes such an election is exempt from income tax and is not required to file a return for subsequent taxation years.

998(c.4); 998R3

Mutual fund trust

A mutual fund trust is a unit trust whose units are all held and circulate in accordance with the prescribed conditions governing the number of unitholders, the dispersal of ownership of the units and public trading of the units.

Under federal legislation, a trust can elect to be treated as a mutual fund trust from the beginning of its first taxation year if it became a mutual fund trust within 90 days after the end of that taxation year. For the purposes of Québec legislation, no such election can be made unless it is made under federal legislation, in which case it is automatically deemed to be made. Therefore, if the trust makes this election with the CRA, you must send us proof that the election was made and written notification no later than the filing deadline for the income tax return or 30 days after the election was made (whichever is later).

Under federal legislation, a trust can elect to have its taxation year end on December 15 if it is a mutual fund trust on the 74th day after the end of a calendar year and its taxation year (referred to as the "taxation year concerned") would normally end on December 31 of the calendar year. For the purposes of Québec legislation, no such election can be made unless it is made under federal legislation, in which case it is automatically deemed to be made. Therefore, if the trust makes this election with the CRA, you must send us proof that the election was made and written notification no later than the filing deadline for the return or 30 days after the election was made (whichever is later). This election has the following tax consequences for the trust:

• Each subsequent taxation year begins on December 16 of a calendar year and ends on December 15 of the following calendar year, unless otherwise provided for in the Taxation Act.

• For the taxation year concerned and each subsequent taxation year:

  • any fiscal period of a business or of a property of the trust that begins in this taxation year must end no later than the end of said taxation year;

  • if the trust is a member of a partnership or the beneficiary of another trust, and if the partnership's fiscal period or the other trust's taxation year ends in the last 16 days of the calendar year, the trust must take into account its share in the income (or losses) of the partnership for that fiscal period or in the income of the other trust for that taxation year;

  • the portion of the trust's income that is paid or payable to unitholders in the last 16 days of the calendar year is deductible for the trust and taxable for the unitholders.

If the trust fails to send us a copy of any document filed with the CRA within the prescribed deadline, it will be liable to a penalty of $25 per day, up to a maximum of $2,500.

In some situations, a mutual fund trust cannot elect to have its taxation year end on December 15, such as when the trust ceases to be resident in Canada or is subject to a loss restriction event.

Under section 1121.1 of the Taxation Act, a mutual fund trust may designate, for the year, an amount in respect of a particular unit, to a maximum of the portion of the cost base reductions of all the units (for example, capital distributions) for previous years that has not been similarly designated for the year, in respect of the other units, or for the previous years, in respect of all the units. As a result of the designation:

• you must report the designated amount on the RL-16 slip of the unit's holder as income and as an adjustment that increases the unit's ACB; and

• you may claim a deduction in calculating the trust's income.

For taxation years beginning on or after March 19, 2019, a mutual fund trust can no longer, on redemption of the trust's units, deduct the portion of an amount allocated to a unitholder that exceeds the capital gain that would otherwise have been realized by the unitholder if the amount allocated were subtracted from the redemption proceeds. For taxation years beginning after December 15, 2021, a mutual fund trust that is an exchange traded fund or a fund that offers exchange traded funds is subject to special rules that limit the deduction of certain amounts allocated to a unitholder on redemption.

Similarly, a mutual fund trust can no longer, upon redemption of the trust's units, deduct ordinary income allocated to a unitholder if the amount allocated is subtracted from the redemption proceeds.

Since March 22, 2017, the mutual fund merger rules have been extended to facilitate the reorganization of a mutual fund corporation that is structured as a switch corporation into multiple mutual fund trusts on a tax-deferred basis. The exchange of a unit of a mutual fund trust for another unit of that trust may qualify for a tax deferral.

A switch corporation is a mutual fund corporation with multiple classes of shares. Each class of shares is usually a distinct investment fund.

To qualify for the tax deferral, with respect to each class of shares of the mutual fund corporation that is or is part of an investment fund, all or almost all of the assets allocable to that class must be transferred to a mutual fund trust after March 21, 2017. In addition, the shareholders of that class must become unitholders of that mutual fund trust.

21.4.7, 649, 785.4, 1120, 1121.1 ff.

Non-profit organization

An organization, such as a club, society or association that is established and operated exclusively for non-profit purposes, is generally exempt from income tax if no portion of its income is payable or otherwise made available to a proprietor, member or shareholder, unless the proprietor, member or shareholder is a club, society or association whose main object is the promotion of amateur athletics in Canada. Such an organization may nonetheless be required to file a return as a tax-exempt entity (refer to the last paragraph of section 1.2.5).

If the main purpose of the organization is to provide dining, recreational or sports facilities to its members, a trust is considered to have been created with respect to the organization's property (refer to section 1.2 for requirements regarding the obligation to file a trust income tax return). In this case, only the following amounts should be included in the calculation of the trust's income:

• income and losses derived from the organization's property; and

• capital gains and losses from the disposition of property that was not used exclusively and directly in the pursuit of the organization's main objective.

Such a trust is entitled to an additional deduction of $2,000 in the calculation of its taxable income (line 94 of the return).

986, 996, 997, 997.1

Personal trust

• a trust created gratuitously in which no beneficiary right was acquired for consideration to be paid, directly or indirectly, to the trust or to a person or partnership that contributed to the trust, in order to acquire a beneficial interest. The settlor may acquire all the interests in the trust without the trust losing its status as a personal trust; or

• the same is true for settlors that are related to each other.

NOTE The term "personal trust" means, among others: a spousal trust; a joint spousal trust; an alter ego trust or a self-benefit trust; a trust for a beneficiary under 21 years of age; a deemed trust. A unit trust is not considered to be a personal trust.

649.1, 651.3

Qualified disability trust (QDT)

A QDT is a trust that, for a given taxation year (referred to as the "trust year" below) meets the following conditions:

• It is a testamentary trust that arose on and as a consequence of an individual's death.

• It is resident in Canada throughout the trust year.

• It makes a joint election (using the prescribed form), with one or more electing beneficiaries (refer to the definition in Part 6), to be considered a QDT.

• It provides the social insurance number of each of the electing beneficiaries in its income tax return.

• Each electing beneficiary meets the following conditions:

  • The beneficiary is an individual designated as a beneficiary in the instrument that established the trust.

  • The beneficiary did not make a joint election with another trust, for a taxation year of a trust ending during the beneficiary's taxation year, to designate that trust as a QDT.

• The trust did not pay or distribute any amount in the form of capital to a beneficiary who is not an electing beneficiary.

A QDT that is, for the year, a GRE is subject to the recovery tax in any of the following situations:

• The trust ceases, during the year, to have as beneficiaries individuals who were its electing beneficiaries during one or more previous taxation years. This can be caused, for example, by the death of the electing beneficiary or, where the trust had more than one electing beneficiary, by the death of the last electing beneficiary.

• The trust is no longer resident in Canada.

• The trust distributed an amount in the form of capital to a beneficiary who was not an electing beneficiary during the previous taxation year. However, certain payments made by the trust do not result in the recovery tax, such as payments made to a beneficiary as the debtor of the trust.

To calculate the recovery tax, complete form TP-768.1, Recovery Tax: Qualified Disability Trust, and enter the result from line 811 on line 150.1 of the trust income tax return.

You must take the recovery tax into account when calculating instalment payments, if applicable.

If the trust is designated as a QDT, you must check box 27 of the return and provide the requested documents and information.

768-768.2

Religious organization (other than a charity)

A congregation is a group of individuals who are part of a religious organization. A trust is deemed to have been created and to hold the property of a congregation if the following conditions are met:

• All the members of the congregation live and work together, do not have the right to own property in their own name, and devote their working lives to the activities of the congregation.

• The congregation carries on one or more businesses, or manages or controls businesses through a business agency (such as a corporation or a trust), for the purpose of supporting its members or the members of any other congregation.

The trust must calculate its income tax and comply with the requirements regarding the obligation to file an income tax return. Each year, however, the trust can elect, under federal legislation, to allocate all of its taxable income to its beneficiaries (the members of the congregation). For the purposes of Québec legislation, no such election may be made unless it is made under federal legislation, in which case it is automatically deemed to be made, provided the income tax, interest and penalties payable by the trust's beneficiaries for previous years are paid within the time limit required under the Taxation Act. Therefore, if the trust makes this election with the CRA, you must send us proof that the election was made and written notification no later than the filing deadline for the return or 30 days after the election was made (whichever is later).

If the trust earned business income in the year and a portion of the income is payable to a member of the congregation, the income is considered to be derived from a business operated by the member.

851.23-851.31

Self-benefit trust

A self-benefit trust has the same characteristics as an alter ego trust, except that the settlor may be less than 65 years of age. Refer to "Alter ego trust" on page 25.

454.2(a) and (b)(ii)

Specified investment flow-through trust (SIFT trust)

For a given taxation year, a SIFT trust is a trust that is neither an excluded subsidiary entity (refer to the definition in Part 6) nor a real estate investment trust (REIT) but that meets the following conditions at some time during the year:

• The trust is resident in Canada.

• Investments in the trust are listed or traded on a stock exchange or other public market.

• The trust holds one or more non-portfolio properties.

If a SIFT trust has an establishment in Québec, it must:

• calculate the non-deductible allocations amount (which is considered to be the amount of allocated non-portfolio earnings) and allocate the amount to its beneficiaries as an eligible dividend;

• pay income tax on the taxable distributions amount at the same tax rate as corporations. If the trust has an establishment in Québec and also has an establishment elsewhere, it must use the business allocation formula used by corporations to calculate the income tax.

The trust can use Schedule E to calculate:

• the deduction it can claim with respect to the portion of its income that is allocated to beneficiaries;

• the income tax payable on the taxable distributions amount; and

• the eligible dividends to be designated.

NOTE If the trust issued stapled securities, refer to section 3.4.

1129.70, 1129.71

Specified trust

A trust is considered to be a specified trust for a particular taxation year if it is an inter vivos trust that was not resident in Canada at any time in the year and that is not tax-exempt.

If, during the taxation year, such a trust is the owner of a specified immovable or is a member of a partnership that owns such an immovable, it must pay income tax on the property income (or its share of the property income, where it is a member of a partnership) derived from the rental of the specified immovable.

A specified trust that did not earn income from other sources in Québec must complete lines 1 through 11 (making sure to check box 8b) and Part 7 of the return before reporting any property income derived from the rental of a specified immovable and calculating the income tax payable on such income on Schedule F of the return.

A specified trust that earned taxable income in Québec from other sources (such as business income) must calculate the income tax payable on that income on the return in the usual way. The trust must also report any property income derived from the rental of a specified immovable and calculate the income tax payable on that income on Schedule F of the return.

The trust has to file an income tax return and complete Schedule F every year, regardless of whether it is required to pay income tax.

If the rental of a specified immovable results in a net loss with respect to one immovable and net income with respect to another, the loss can be deducted only from the net income of that other immovable.

NOTE If, in a future taxation year, the trust becomes resident in Canada while it is the owner of a specified immovable, it will be deemed to have disposed of the immovable immediately before becoming resident in Canada, for proceeds equal to the FMV of the immovable at that time, and to have reacquired it, immediately afterwards, at a price equal to the proceeds of the deemed disposition (refer to section 5.1.2.2).

1129.77-1129.80

Spousal trust

For tax purposes, spousal trusts (refer to the definitions of "spouse" and "de facto spouse" in Part 6) are grouped into the following two categories:

• pre-1972 spousal trusts, that is:

  • testamentary trusts created before 1972, and

  • inter vivos trusts created before June 18, 1971;

• post-1971 spousal trusts, that is:

  • testamentary trusts created after 1971, and

  • inter vivos trusts created after June 17, 1971.

In the case of a pre-1972 spousal trust, the spouse may, during their lifetime, receive all of the trust's income. However, no other person may receive or otherwise obtain enjoyment of the trust's income or capital from the date on which the trust is created to the spouse's date of death or January 1, 1993, whichever is earlier.

In the case of a post-1971 spousal trust, the spouse has the exclusive right, during their lifetime, to all the trust's income. No other person, prior to the spouse's death, may receive or otherwise obtain enjoyment of the trust's income or capital. An inter vivos trust is considered to be a spousal trust if it possesses these characteristics throughout its existence.

If the settlor of a spousal trust transfers property to the trust, the settlor can take advantage of the rollover rule. When this rule is applied, there is no immediate tax incidence for the settlor with respect to the transfer. For more information, refer to section 3.1.1.

However, such a transfer may be subject to the income attribution rule. In this case, the settlor rather than the trust or spouse must report the income (or loss) derived from the transferred property or the capital gain (or loss) derived from the disposition of the property. For more information, refer to sections 3.2.1 and 3.2.2.

Death of the beneficiary

Since 2016, the following rules have applied to spousal trusts for the taxation year in which the beneficiary dies:

• The trust's taxation year is deemed to end at the end of the day of death, and a new taxation year is deemed to begin at the start of the following day.

• The trust's income for the year is taxable in the trust's income tax return. However, the income can be taxable in the deceased beneficiary's income tax return if the following conditions are met:

  • The beneficiary was resident in Canada immediately before the death.

  • The trust was, immediately before the death, a testamentary trust that is a post-1971 spousal trust established by the will of a taxpayer who died before 2017.

  • The trust and the legal representative who is administering the GRE have made a joint election, using the prescribed form, to have the trust's income for the year be deemed payable to the beneficiary who died in that year. The election form must be enclosed with the individual's income tax return for the year of death and the income tax return of the trust for the given year.

• The deadline for paying the trust's income tax and filing its income tax return and RL-16 slips is the 90th day of the year following the calendar year during which the trust's taxation year ended.

The trust and the beneficiary are solidarily liable for the portion of income tax that the beneficiary must pay when the trust's income is included in the calculation of the beneficiary's income for their taxation year.

You must check box 28 of the income tax return if the trust is a spousal trust and the beneficiary of the trust died in the taxation year concerned. You must also enter the date of the beneficiary's death.

NOTE A trust may cease to be considered a spousal trust where, during the lifetime of the spouse, another beneficiary receives or otherwise obtains enjoyment of all or part of the trust's income or capital, or where the benefits to the spouse are changed or cease to be granted.

440, 454, 652.1, 663.0.1, 1034.0.0.4

Trust for a beneficiary under 21 years of age

A testamentary or inter vivos trust may keep, on behalf of a beneficiary, the portion of its income earned in the year that did not become payable to the beneficiary in the year because the beneficiary is under 21 years of age. The portion in question is nonetheless considered to have become payable (therefore allocated) to the beneficiary in the year if the following conditions are met:

• The trust was resident in Canada throughout the taxation year.

• The beneficiary was under 21 years of age at the end of the taxation year.

• The right to the trust's income:

  • was vested in the beneficiary no later than the end of the year (and no one exercised a discretionary power on that right); and

  • was not subject to any future condition, other than a condition respecting the beneficiary's survival to the age of 40.

The trust must therefore allocate to the beneficiary the portion of the income considered to have become payable during the year to the beneficiary concerned. The amount can be deducted on line 81 of the trust's return.

A person who transferred or loaned property to the trust may be subject to the income attribution rule. This means that this person, not the trust nor the beneficiary, may have to report the income (or loss) derived from the property or the capital gain (or loss) derived from the disposition of the property. For more information, refer to sections 3.2.1 and 3.2.2.

664

Unit trust

A unit trust is an inter vivos trust in which, at any particular time, a beneficiary's interest is defined in terms of the units of the trust. The trust and its units must nevertheless meet the conditions set forth in section 649 of the Taxation Act.

649

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