TABLE OF CONTENTS Acknowledgements... iii Chapter 1 Filing Requirements and Administration 1.1 Who Should File?... 1 1.2 Where to File... 2 1.3 How to File... 2 1.3.1 Paper Return, Summary and Slips... 2 1.3.2 Internet Filing... 2 (a) Filing on Web Forms... 3 (b) Filing by Internet File Transfer... 3 (c) Web Access Code... 3 1.4 Filing Requirements and Deadlines... 3 1.5 Interest and Penalties... 4 1.6 Liability of Trustees and Personal Representatives... 4 1.7 Clearance Certificates... 6 Think About... 6 1.8 Assessments and Reassessments... 7 1.9 Notice of Objection... 7 Think About... 12 Chapter 2 Completing the T3 Trust Information and Income Tax Return 2.1 Application for Trust Account Number... 13 2.2 Name of Trust... 13 2.3 Name of the Trustee, Executor, Liquidator or Administrator... 13 2.4 Mailing Address... 13 2.5 Trust Account Number... 14 2.6 Telephone Numbers... 19 2.7 Residence of Trust... 19 2.8 Type of Trust... 19 2.8.1 Testamentary Trust... 19 2.8.2 Inter Vivos Trust... 20 2.9 Return for Tax Year... 21 2.10 Amended Return... 22 2.11 Final Return... 22 2.12 Official Language... 23 2.13 Deemed Resident... 23 2.14 Other Information Required... 23 2.14.1 Electing Trust... 24 2.14.2 Income Payable to Beneficiaries... 24 2.14.3 Distribution to Beneficiary... 24 2.14.4 Change of Beneficiaries... 25 2.14.5 Death of Lifetime Beneficiary... 25 v
2.14.6 Incurred a Non-Arm s Length Debt... 25 2.14.7 Change in Beneficial Ownership... 26 2.14.8 Change of Beneficiaries... 26 2.14.9 Additional Contribution of Property... 26 2.14.10 Public Trusts... 26 2.14.11 International Financial Reporting Standards... 27 2.14.12 Loss Restriction Event... 27 Think About... 32 Chapter 3 Calculating Total Income 3.1 Line 01 Taxable Capital Gains... 33 3.1.1 General Rules... 33 3.1.2 Reserve for Proceeds Not Due... 34 3.1.3 Utilizing Capital Losses... 35 3.1.4 Characterization of Capital Gain for Trust Law vs. Tax Purposes... 36 3.2 Line 02 Pension Income... 37 3.3 Line 03 Total of Actual Amount of Dividends from Taxable Canadian Corporations... 37 3.3.1 Deemed Dividend... 38 3.3.2 Capital Dividend... 39 3.4 Line 04 Foreign Investment Income... 40 3.5 Line 05 Other Investment Income... 40 3.6 Line 06 Business Income... 41 3.7 Line 07 Farming or Fishing Income... 42 3.8 Line 09 Rental Income... 42 3.9 Line 10 AgriInvest Fund 2... 43 3.10 Line 11 Deemed Disposition, Income or Losses... 43 3.11 Line 19 Other Income... 44 3.11.1 Death Benefit Other than CPP or QPP... 44 3.11.2 Registered Retirement Savings Plan (RRSP)... 45 3.12 Line 20 Trust s Total Income... 45 Think About... 46 Chapter 4 Calculating Net Income 4.1 Line 21 Carrying Charges and Interest Expense... 47 4.1.1 Interest Expense... 47 4.1.2 Re-Loaned Funds... 48 4.1.3 Other Carrying Charges and Expenses... 48 4.1.4 Accounting Fees... 48 4.1.5 Legal Fees... 49 4.2 Line 24 Trustee Fees Deductible from Income... 50 4.3 Line 25 Allowable Business Investment Losses (ABIL)... 51 4.4 Line 40 Other Deductions from Total Income... 52 4.5 Line 43 Upkeep, Maintenance and Taxes of a Property Used or Occupied by a Beneficiary... 52 4.6 Line 44 Value of Other Benefits to a Beneficiary... 53 4.7 Line 45 Total Taxable Benefits... 53 vi
4.8 Line 47 Total Deductible Income Allocations... 53 4.9 Line 49 Total Gross-Up Amount of Dividends Retained or Not Designated by the Trust... 54 4.10 Line 50 Trust s Net Income... 54 Think About... 55 Chapter 5 Calculating Taxable Income 5.1 Line 51 Non-Capital Losses of Other Years... 57 5.2 Line 52 Net Capital Losses of Other Years... 57 5.3 Form T3A Request for Loss Carryback by a Trust... 58 5.4 Line 54 Other Deductions to Arrive at Taxable Income... 58 5.5 Line 56 Trust s Taxable Income... 59 Think About... 60 Chapter 6 Summary of Tax And Credits 6.1 Line 81 Total Federal Tax Payable... 61 6.2 Line 82 Provincial or Territorial Tax Payable... 61 6.3 Line 83 Part XII.2 Tax Payable... 61 6.3.1 Designated Income... 62 6.3.2 Designated Beneficiary... 62 6.4 Line 85 Tax Paid by Installments... 63 6.5 Line 86 Net Tax Deducted... 63 6.6 Line 88 Refundable Investment Tax Credit... 63 6.7 Line 90 Part XII.2 Tax Credit... 63 6.8 Line 91 Other Credits... 63 6.8.1 Newfoundland and Labrador Research and Development Tax Credit... 63 6.8.2 Yukon Research and Development Tax Credit... 63 6.8.3 British Columbia Mining Exploration Tax Credit... 64 6.8.4 Manitoba Mining Exploration Tax Credit... 64 6.9 Line 94 Refund or Balance Owing... 64 6.10 Line 95 Amount Enclosed... 64 6.11 Line 100 Refund Code... 65 6.12 Name and Address of Person or Company (Other than Trustee, Executor, Liquidator or Administrator)... 65 6.13 Certification... 65 Think About... 66 Chapter 7 Trust Schedules and Forms 7.1 Schedule 1 Dispositions of Capital Property... 67 7.1.1 Meaning of Disposition... 72 7.1.2 Qualified Small Business Corporation (QSBC) Shares... 73 7.1.3 Qualified Farm or Fishing Property... 73 7.1.4 Mutual Fund Units and Other Shares... 75 7.1.5 Bonds, Debentures, Promissory Notes and Other Similar Properties... 75 7.1.6 Real Estate and Depreciable Property... 76 (a) General Comments... 76 (b) Non-Arm s Length Transfers... 76 vii
(c) Land... 77 7.1.7 Principal Residence... 77 7.1.8 Valuation Day (V-Day) Considerations... 77 7.1.9 Personal-Use Property... 78 7.1.10 Listed Personal Property (LPP)... 78 7.1.11 Information Slips... 78 7.1.12 Capital Gains (or Losses) from Reserves... 79 7.1.13 Capital Gains from Gifts of Other Capital Property... 79 7.1.14 Total Capital Losses Transferred Under 164(6)... 79 7.2 Schedule 2 Reserves on Dispositions of Capital Property... 80 7.3 Schedule 3 Eligible Taxable Capital Gains... 82 7.4 Schedule 4 Cumulative Net Investment Loss... 85 7.5 Schedule 7 Pension Income Allocations and Designations... 88 7.6 Schedule 8 Investment Income, Carrying Charges, and Gross-Up Amount of Dividends Retained by the Trust... 90 7.6.1 Dividends from Taxable Canadian Corporations... 90 Line 1 Actual Amount of Dividends other than Eligible Dividends from Taxable Canadian Corporations... 90 Line 2 Actual Amount of Eligible Dividends from Specified Taxable Canadian Corporations... 90 Line 3 Total of the Actual Amount of Dividends from Taxable Canadian Corporations (Line 1 plus Line 2)... 90 7.6.2 Foreign Investment Income... 90 7.6.3 Lines 7 to 12 Other Investment Income... 90 7.6.4 Lines 13 to 17 Carrying Charges and Interest Expenses... 90 7.6.5 Lines 18 to 40 Calculating the Gross-Up Amount of Dividends Retained or Not Designated by the Trust... 90 7.7 Schedule 9 Income Allocations and Designations to Beneficiaries... 93 7.8 Schedule 10 Part XII.2 Tax and Part XIII Non-Resident Withholding Tax... 96 7.9 Schedule 11 Federal Income Tax... 99 7.10 Schedule 12 Minimum Tax... 103 Think About... 110 Chapter 8 Completing the T3 Summary and T3 Slips 8.1 General... 111 8.2 Completing the T3 Summary... 111 8.3 Completing the T3 Slips... 114 8.3.1 Dividends... 114 8.3.2 Taxable Capital Gains... 115 8.3.3 Other Income Allocations and Designations... 115 8.3.4 Tax and Other Credits... 117 8.4 Filing the T3 Summary and T3 Slips... 120 8.4.1 Filing... 120 8.4.2 Distributing the T3 Slip... 120 8.5 Amending, Cancelling or Issuing Duplicate T3 Slips... 120 8.5.1 Amended Slips... 120 8.5.2 Cancelled Slips... 120 viii
8.5.3 Duplicate Slips... 121 8.6 Amending the T3 Summary... 121 Think About... 122 Chapter 9 Filing Requirements for Non-Resident Trusts 9.1 Introduction... 123 9.2 Deemed Resident Trust... 123 9.2.1 General Computation Rules... 123 9.2.2 Distributions to Non-Residents and Subsection 104(7.01)... 123 9.2.3 Part I Tax Calculation... 123 9.2.4 Foreign Tax Credit... 123 9.2.5 Part XII.2 Tax... 124 9.2.6 Part XIII Tax... 124 (a) Receiving Income... 124 (b) Payments by the Trust... 124 9.2.7 21-Year Rule Deemed Realizations... 124 9.3 Non-Resident Trust... 124 9.3.1 Basis of Taxation... 124 9.3.2 Treaty Exemptions... 124 9.3.3 No Deduction on Distribution... 125 9.3.4 Part I Tax Calculation... 125 9.3.5 Part XII.2 Tax... 125 9.3.6 No Part XIII Tax... 125 9.3.7 Section 216... 125 9.3.8 21-Year Rule Deemed Realizations... 125 9.4 Disposition of Taxable Canadian Property... 125 9.4.1 Section 116 Requirement... 125 (a) Deemed Resident Trust... 125 (b) Non-Resident Trust... 126 9.4.2 Liability of Purchaser... 126 9.4.3 Penalty... 126 9.5 Reporting by Contributor... 126 9.6 Reporting by Beneficiaries... 127 9.7 Reporting by Trust... 127 9.7.1 Foreign Affiliates... 127 9.7.2 Foreign Property... 128 9.8 Penalties... 130 9.9 Summary Table... 132 Appendix A: CRA Publications, Forms and Schedules for Trusts... 133 Index... 135 ix