Income attribution rules, generally speaking, operate so that income of one person (the actual recipient of the income) is attributed to and becomes income of another person (the transferor). Whether or not income which is subject to subsection 75(2) is first and foremost income of the trust itself can be significant for how the trust return is prepared and/or whether or not a liability for alternative minimum tax.
When questioned, the Canada Revenue Agency (CRA) repeated its position for trusts holding property subject to subsection 75(2) to file a T3 return where the trustee has control of or receives income, gains or profits in the trustee’s fiduciary capacity, even if the trustee computes nil income for the trust for tax purposes. The requirement to report income in this manner ensures proper administration of the tax system including the assessment of the tax payable of a settlor or contributor of property to a trust.
Page 45 of the 2018 T4013 – T3 Trust Guide notes that amounts attributed pursuant to subsection 75(2) “are considered to belong to the contributor during the contributor’s life or existence while a resident of Canada. The trust must still report the amount on the trust’s T3 return and issue a T3 slip reporting the amount as that of the contributor of the property”.
Schedule 9, Income Allocations and Designations to Beneficiaries is used to report any income that is being attributed and amounts on Schedule 9 are then transferred to Line 471 on the T3 Return as a deduction from the trust’s income. While this approach may be suitable for the majority of trusts holding property that is subject to subsection 75(2), the CRA will consider whether the approach is appropriate especially in the context of the calculation of minimum tax on the T3 Schedule 12.
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