Principal Issues: When a resident of Canada receives a distribution from a non-resident trust or estate following the death of a parent, is the resident of Canada required to file Form T1142, Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust?
Position: Only distributions from the estate are exempt from the filing requirements under 233.6
Reasons: The exception in 233.6 for "an estate that arose on and as a consequence of the death of an individual" only applies to distributions from the estate before it is fully administerd. It does not apply to distributions from an alter ego trust or any other inter vivos trust that makes distributions following the death of an individual, nor does it apply to distributions from an on-going testamentary trust that was created under the terms of the will.
2007 STEP Round Table
Q. 8 Foreign Reporting
When a resident of Canada receives a distribution from a non-resident trust or estate following the death of a parent, is the resident of Canada required to file Form T1142, Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust?
Response
Form T1142 is generally required to be filed when a person receives a distribution of property from, or is indebted to, a non-resident trust. Section 233.6 of the ITA provides an exemption from filing form T1142 in respect of a distribution from a non-resident estate that arises on and as a consequence of the death of an individual. Thus, form T1142 does not have to be filed by a person who receives a distribution from a non-resident estate during the period of administration of that estate, which is normally the year following the death of the individual - in this example, the parent. However, once the estate has been administered, the Canadian beneficiary of any ongoing non-resident testamentary trust must file form T1142 in any year where a distribution is received from the trust or where the Canadian beneficiary becomes indebted to the trust.
If the non-resident trust is a trust that was created before the death of the parent and the Canadian beneficiary is entitled to receive distributions only after the death of that parent, the trust is not an estate that arose on and as a consequence of the death of an individual. Therefore, a distribution from such a non-resident trust following the death of the parent must be reported on form T1142 filed by the beneficiary who received the distribution. For further commentary, see document 2000-0047355.