A non-resident individual owning a Canadian rental property had filed T1 returns pursuant to the s. 216 rules. On her death, that property was deemed to be transferred to her non-resident estate (the “Estate”) at FMV, which did not distribute the rental income thereon, and the property was then distributed to her two non-resident children (Y and Z) as equal residuary capital beneficiaries, who became equal co-owners. The non-resident executors wish to designate the Estate as a graduated rate estate (“GRE”).
Can the Estate file a T3 return under s. 216; and after such distribution, can Y and Z each file a s. 216 return on 50% of the property’s rental income?
After making various assumptions, including that s. 94 does not apply to the Estate, that the Estate will not use the optional method of payment provided under s. 216(4), and that the executors would hold legal and beneficial ownership of the estate property until its distribution, and after further noting that "[t]here is no provision in the Act prohibiting an estate filing under section 216 from qualifying as a GRE [graduated rate estate]." CRA stated:
A non-resident estate could file its return of income under Part I pursuant to a section 216 election by the filing due date set out under section 216 and make the GRE designation in the return. While the Estate is a GRE, the Estate will be taxed at the graduated rates in respect of the net rental income. ...
… Provided that the section 216 requirements are satisfied, from the time they acquire beneficial ownership of the property, Y and Z could elect to file under Part I pursuant to section 216 in respect of their share of income derived from the rental property. …