A non-resident trust has resident beneficiaries (who are not successor beneficiaries as defined in s. 94(1)) and its contributor had made a contribution to the trust less than 60 months before becoming resident. Is the trust deemed to be resident for the five taxation years before the taxation year in which the individual became resident in Canada? If so, would CRA expect T3 income tax returns and foreign reporting forms, such as the T1 135 and the T1 134, to be filed for these previous years and would interest and late-filing penalties be applied to any tax owing by the non-resident trust for these prior years?
CRA indicated that all the advanced propositions were correct, and illustrated them in its first example respecting "Mr. X" as the contributor. The most relevant provision is s. 94(10), which has a lookback effect. Where s. 94(10) applies, one of the outcomes is that the trust is subject to Canadian tax for each of the taxation years.
The trust will also be subject to interest and penalties for each year for which a return was not filed, and it will be required to complete foreign reporting forms, T1135 and T1134, if applicable, for each of those years. Interest and penalties will also apply to the reporting for the relevant taxation years. S. 152(4)(b)(vii) allows for assessment or reassessment of tax, interest or penalties within an additional three years beyond the normal reassessment period to give effect to the application of s. 94.
CRA then provided two further examples respecting Mr. Z and Mr. Y as the contributors to illustrate the following propositions:
- where the contributor was not a non-resident for 60 months prior to making the contribution (i.e., in the example, Mr. Z became a non-resident in 2010 and made the contribution in 2013, before becoming resident again in 2018), the non-resident trust would be deemed to be resident in Canada by virtue of s. 94(3) commencing in the taxation year during which the contributor made the contribution to the non-resident trust (i.e., 2013)
- it is unnecessary for the contributor to have never been a resident of Canada before making the contribution to a non-resident trust for s. 94(10) to apply (e.g., Mr. Y became a non-resident in 2008, made the contribution in 2013 and became resident again in 2018).