2014-0556881E5 Bill C-43 – Calendar year for testamentary trusts

Principal Issues: Change in tax treatment of testamentary trusts arising from Bill C-43 may result in a deemed tax year end of December 31, 2015. For testamentary trusts previously having a non-calendar year end, the receipt of dividends by the trust on December 31, where the trust habitually allocates this income to its beneficiaries at the trust tax year end, could result in the allocation of dividend income from two trust tax years for the 2015 tax year of the beneficiaries. Are there any transitional rules in place to alleviate reporting more than twelve months of trust income by the beneficiaries?

Position: There are no transitional rules.

Reasons: Bill C-43 did not contain any transitional rules.

Author: King, William
Section: s.248(1); s.249(1); s.249(4.1)

XXXXXXXXXX
                                         2014-055688
                                          W. King

December 31, 2015

Dear XXXXXXXXXX:

Re:  Bill C-43 – Calendar year for testamentary trusts

This is in reply to your email correspondence and our telephone conversations during which you asked if there is any transitional relief with respect to the legislative changes in Bill C-43 which require an existing testamentary trust, which will not be a graduated rate estate, to have a taxation year that coincides with the calendar year; commencing with a deemed taxation year of December 31, 2015.

The scenario you provided is one where a testamentary trust, having a non-calendar year end, owns shares of a private corporation which has paid dividends on December 31 each year and the trust has habitually allocated this income to its beneficiaries at the trust year end.  As a result of the deemed December 31, 2015 year end for existing testamentary trusts, you view the result as beneficiaries having to report more than twelve months of income in their 2015 tax year.

Our Comments:

This technical interpretation provides general comments about the provisions of the Income Tax 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 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

As previously discussed with you, the legislative changes in Bill C-43 do not include any transitional rules which would apply to the scenario you described.

We trust our comments will be of assistance.

Yours truly,

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

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