2024-1006681E5 Arrangements subject to trust reporting

Principal Issues: Whether an arrangement under which a person can reasonably be considered to act as agent for another person with respect to all dealings with certain property, without the arrangement being a trust or giving rise to the creation of a trust under the applicable private law, is considered to be a trust for the purposes of section 150 for taxation years ending after December 30, 2023.

Position: No, provided the arrangement is not otherwise deemed to be a trust for the purposes of the Act.

Reasons: In order for an arrangement to be one described in subsections 104(1) and 150(1.3), it must be reasonable to consider that a trust acts as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property. An arrangement that is not a trust and does not create a trust under the applicable private law, and that is not otherwise deemed to be a trust for the purposes of the Act, is not deemed to be a trust by the sole effect of subsections 104(1) and 150(1.3).

Author: Brulotte, Isabelle
Section: 150(1)(c); 150(1.1); 150(1.2); 150(1.3); 104(1)

XXXXXXXXXX                                                                     2024-100668

                                                                                             Isabelle Brulotte, CPA

February 27, 2024

Dear XXXXXXXXXX:

Re: New trust reporting requirements

This is in response to your recent question regarding the new trust reporting requirements. In particular, you describe a situation involving an arrangement under which a person can reasonably be considered to act as agent for one or more other persons with respect to all dealings with certain property, without the arrangement being a trust or giving rise to the creation of a trust under the applicable private law, and without any valid trust (under the applicable private law) being otherwise involved in the arrangement. You ask whether, in such circumstances, subsections 104(1) and 150(1.3) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (“Act”) would apply to the arrangement, such that it would be considered to be a trust for purposes of section 150.

Unless otherwise stated, all statutory references herein are to the Act.

Our Comments

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 70-6R12, Advance Income Tax Rulings and Technical Interpretations (“IC 70-6R12”).

Changes to the trust reporting requirements apply to taxation years ending after December 30, 2023. As a result of these changes, certain trusts, including those that are otherwise deemed not to be trusts for most other purposes of the Act, will have to file a T3 Trust Income Tax and Information Return (“T3 return”), even though they were not required to do so for previous taxation years.

Under subsection 104(1), an arrangement under which a trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property is deemed not to be a trust for most purposes of the Act. However, as it applies to taxation years ending after December 30, 2023, this deeming rule does not apply for the purposes of, among others, section 150. To the same effect, subsection 150(1.3) reiterates that, for the purposes of section 150, a trust includes such an arrangement. Accordingly, the arrangement is considered to be a trust for purposes of section 150, even though it is not considered as such for most other purposes of the Act. It follows that a T3 return shall be filed by such trust, unless an exception applies (footnote 1) .

In order for an arrangement to be one described in subsections 104(1) and 150(1.3), it must be reasonable to consider that a trust acts as agent for all the beneficiaries under the trust with respect to all dealings with all the trust’s property. Therefore, in order to determine whether an arrangement is subject to these provisions, it must be determined if the arrangement is a trust or gives rise to the creation of a trust based on the applicable private law, or if the arrangement is otherwise deemed to be a trust for the purposes of the Act. It should be noted that the question of whether a given arrangement is a trust or gives rise to the creation of a trust under the applicable private law is a question of fact and law. As indicated in Information Circular IC 70-6R12, our Directorate generally does not comment on such questions. It is the responsibility of the parties involved in an arrangement to determine the nature of their true legal relationships and be able to clearly demonstrate such relationships.

To the extent that a given arrangement is not a trust and does not give rise to the creation of a trust under the applicable private law, and is not otherwise deemed to be a trust for the purposes of the Act, it will not be an arrangement described in subsections 104(1) and 150(1.3). Accordingly, the arrangement will not be a trust for the purposes of section 150.

We trust these comments will be of assistance to you.

Yours truly,

Mélanie Beaulieu
Manager
Financial Industries and Trusts Section
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 In particular, in situations where subsection 150(1.2) does not prevent the application of subsection 150(1.1), either because the preamble is not met or because one of the listed exceptions in subsection 150(1.2) applies, a T3 return may not be required as per subsection 150(1.1).

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