Designations under subsections 104(13.1) and (13.2) to retain and tax income or capital gains in the trust are restricted after 2015 as a result of subsection 104(13.3). For more information, see Income to be taxed in the trust.
Effective for 2016, under subsection 104(13.4), where a beneficiary of an alter ego trust, spousal or common-law partner trust, or the last surviving beneficiary of a joint spousal or common-law partner trust dies there is a deemed year end of the trust at the date of death of the beneficiary. All the income of the trust for that year must be included in the income reported on the beneficiary’s final T1 return.
Under proposed changes, effective for 2016 and subsequent years, the income realized by the trust for the trust’s deemed year end will be reported on the trust’s T3 return rather than on the beneficiary’s final T1 return. However, it is proposed that a spousal or common-law partner trust may file a joint election to report the income in the beneficiary’s final T1 return.
For the joint election to be valid the following requirements must be met:
- immediately before death, the beneficiary was a resident of Canada;
- the trust is a testamentary trust that is a post-1971 spousal or common-law partner trust and was created by the will of a taxpayer who died before 2017;
- the trust and the beneficiary’s graduated rate estate jointly elect in a prescribed form; and
- a copy of the joint election is filed with both the final T1 return of the beneficiary and the T3 return for the deemed year end of the trust.
To make the election, attach a letter to both the T1 final return and the T3 trust return with the following information:
- the T1 and T3 account numbers;
- the income amount that was allocated in the T3 slip and reported on the T1 return of the deceased beneficiary;
- the signatures, names and addresses of both the trustee and the executor for the deceased beneficiary.
For more information on these proposed changes, go to Death of a beneficiary of a spousal or similar trust.