Under s. 75(2), income is considered to be the income of another taxpayer (the trust contributor without the income being explicitly removed from the trust itself. This affects how the trust return is prepared; and whether liability for alternative minimum tax could arise. Satoma concluded that dividend income attributed under s. 75(2) was not income of the trust. Does CRA now accept that income subject to s. 75(2) is never income of the trust in the first place, so that it can be omitted from the trust return, and with no need to prepare a T3 slip?
CRA noted that Satoma indicated that, unlike other attribution provisions, e.g. s. 74.1, which specifically provides that the income is only income to the attributee, s. 75(2) is silent in this regard. However, Noël CJ. also noted express exclusions of this type are inserted for greater certainty, and that the same dividend cannot be received by two persons at once.
While acknowledging these comments, CRA indicated that they are not specifically directed at the T3 return, which is a return of information (in addition to a return of income) affecting the taxation of persons with some connection to the trust.
Reg. 204 imposes a requirement to file a T3 return where the trustee has control of, or receives, income, gains, or profits in the trustee’s fiduciary capacity – even if the Trust computes nil income. This includes circumstances where the trust has no income because of the application of s. 75(2). The trust must still report the income on its T3 return and issue a T3 slip reporting the amount as that of the contributor of the property.