A factually non-resident, inter vivos, personal trust which has one resident beneficiary and no resident contributors was subject to s. 94 in each of its 2020 to 2022 taxation years, but only earned income in its 2020 taxation year. No distributions of property occurred in those three years other than a cash capital distribution of $100,000 to the beneficiary on December 30, 2022. In light of the joint and several liability of the resident contributor under s. 94(3)(d) for unpaid taxes of the trust for its 2020 taxation year, subject to limitation by the “recovery limit” provisions of ss. 94(7) and (8), would the resident beneficiary be liable for such taxes given that the beneficiary did not receive any distributions from the trust in its 2002 taxation year; and would a distribution to the beneficiary in subsequent taxation years affect the Minister’s ability to collect in respect of the trust’s 2020 taxation year?
For illustrative purposes, CRA chose two dates: January 1, 2021 (i.e., just after completion of the trust’s 2020 taxation year); and December 31, 2022 (i.e., one day after the distribution). Of particular note was para. (a) of the recovery limit formula in s. 94(8), which totaled the various amounts which were, for example, paid or payable to, or received or receivable or enjoyed by, the particular person, here, the resident beneficiary.
The formula produced a nil result on January 1, 2021, and an amount of $100,000 on December 31, 2022. Accordingly, although on January 1, 2021, the resident beneficiary was jointly and severally liable for the taxes owing by the trust for its 2020 taxation year, the Minister could not collect an amount from the resident beneficiary as of that date. The Minister could, however, assess the resident beneficiary for an amount not exceeding $100,000 on December 31, 2022 given that the conditions in s. 94(7) were by assumption satisfied for the 2020 year – and this was so even if s. 94(3) had ceased to apply to the trust for its 2021 or 2022 taxation year.