2014-0532601E5 Paragraph 94(3)(f) electing trust and form T1135

Principal Issues: Where a deemed resident trust has elected to have paragraph 94(3)(f) apply whether the non-resident portion trust or the particular trust are required to file form T1135.

Position: No

Reasons: The non-resident portion trust is not a deemed resident trust pursuant to 94(3)(a) and is not a "specified Canadian entity" pursuant to section 233.3 of the Act. The particular trust, although a deemed resident trust and a "specified Canadian entity" does not own any "specified foreign property" thus does not meet the requirements of section 233.3 of the Act to file form T1135.

Author: White, Julie
Section: 94(1) "electing trust"; 94(3)(a); 94(3)(f); 233.3

XXXXXXXXXX                                                                                               2014-053260
                                                                                                                        J. White
                                                                                                                        (905) 721-5202
June 27, 2016

Re: Paragraph 94(3)(f) electing trust and form T1135

Dear XXXXXXXXXX,

This is in response to your email in which you asked whether either the non-resident portion trust or the particular trust is required to file form T1135 as provided by section 233.3 of the Act where a deemed resident trust has elected to have paragraph 94(3)(f) of the Income Tax Act (Canada) (the “Act”) apply.

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Paragraph 94(3)(f) of the Act allows a non-resident trust, that pursuant to subsection 94(3) is a deemed resident trust for Canadian income tax purposes, to elect to “carve out” its non-resident portion property such that an inter vivos “non-resident portion trust” is deemed to be created for purposes of the Act other than subsection 104(2).  Where such an election is filed, the deemed resident trust is treated as if it were two trusts, one that is deemed resident in Canada and one that is not resident in Canada for that taxation year and each subsequent taxation year.

In the scenario you have provided, the electing trust (referred to as the “particular trust” in paragraph 94(3)(f)) does have property that is part of its “non-resident portion” as defined by subsection 94(1) of the Act and elects to have paragraph 94(3)(f) apply such that the non-resident portion property, which has a cost in excess of $100,000, becomes part of the non-resident portion trust.  The particular trust does not hold any foreign property. As the non-resident portion trust is a separate trust for purposes of the Act, it must be determined whether the non-resident portion trust is required to file form T1135 in accordance with section 233.3 of the Act.

Section 233.3 of the Act provides that a “specified Canadian entity”, as the “reporting entity”, must file an information return with respect to its “specified foreign property” if the total cost amount of such property exceeds $100,000.  A specified Canadian entity is defined by subsection 233.3(1) as a taxpayer resident in Canada with certain exceptions which are not applicable in the scenario presented.  Since the non-resident portion trust is not a deemed resident trust, it is not resident in Canada and is not a specified Canadian entity.  As the non-resident portion trust is not a specified Canadian entity we do not need to consider whether its property meets the definition of specified foreign property.  As a result there is no requirement for the non-resident portion trust to file form T1135.

Subparagraph 94(3)(f)(ii) of the Act provides that all of the particular trust’s property that is part of the non-resident portion is deemed to be property of the non-resident portion trust and not to be property of the particular trust (except for purposes of paragraph 94(3)(f) and the definition “electing trust” in subsection 94(1)).  The particular trust is deemed resident in Canada and is required, pursuant to subparagraph 94(3)(a)(vi), to determine its obligation to file a return under section 233.3.  As the particular trust is a deemed resident trust it is a specified Canadian entity for purposes of section 233.3.  It is provided as a fact that the particular trust does not have any foreign property such that it would not have any specified foreign property as defined by subsection 233.3(1) to which section 233.3 would apply.  As a result the particular trust is not required to file form T1135.

I trust our comments will be of assistance.

Yours truly,

Steve Fron, CPA, CA
Manager, Trust Section II
Financial Industries and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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