When a trust is wound up, does its taxation year end at that time or does it continue until the time of its normal year-end (which for an inter vivos trust would be December 31 and the fiscal period end adopted for a graduated rate estate (GRE) within its first 36 months.
The Act is specific in certain provisions in deeming a year-end to arise (e.g. for alter ego, spousal and joint spousal trusts, a testamentary trust that ceases to be a GRE, and a trust becoming or ceasing to be resident in Canada), but is silent on this point in the general case.
The T3 Guide states that when a GRE winds up, a taxation year-end occurs on the date of the final distribution of its assets. What is the rationale for this?
CRA noted that s. 249(1)(b) defines the taxation year of a GRE to be the period for which the accounts of the estate are made up for purposes of assessment under the Act and that that paragraph, when combined with s. 249(5), causes the taxation year to cease when the period of accounts ends.
In the year of wind-up, the last period for which the accounts of the Trust would have been made up for a trust other than a GRE, would not be relevant to paragraph (c), which defines “taxation year,” in any other case, to be a calendar year. In the year of wind-up, the last period for which the accounts of the Trust would have been made up would presumably end on the final distribution of the trust property.
As for the other types of trust, s. 249(1)(c) applies to a trust other than a GRE. Paragraph (c) defines “taxation year,” in any other case, to be a calendar year.