In many cases, amounts of trust income are allocated to the beneficiaries of the trust but the corresponding amounts are not actually paid. Instead, the trustees ensure that the amounts are due to the beneficiaries and such amounts are legally enforceable against the trust property. The Canada Revenue Agency was asked if these amounts are to be disclosed in the T3 Return specifically on response to question #6 of the T3 return.
For the purposes of various provisions in the Income Tax Act, including the deduction from income of the trust and the inclusion in income of the beneficiary, an amount is deemed not to have become payable to a beneficiary in a taxation year unless it was paid in the year to the beneficiary or the beneficiary was entitled in the year to enforce payment of it. It follows that where a trust allocates income to a beneficiary in a particular tax year, but rather than paying out the income at that time, provides the beneficiary with the right to enforce payment, the trust establishes a debt to that beneficiary.
The CRA is of the view that if a beneficiary not at arm”s length with a particular trust has been provided with rights to enforce payment of income in a taxation year of that trust, then the information requested in question 6 on page 2 of the T3 Return should be provided upon filing.