All About Estates

Inconsistency in CRA policy for dividends paid to a deceased beneficiary

A recent article discussed taxation anomalies that occur due to timing differences between when a trust receives a dividend and subsequently pays and allocates a dividend to a beneficiary.

CRA view 2016-0647621E5 provides that when a trust receives a dividend in the year and subsequently pays and allocates the dividend to a beneficiary in the same year, the allocation of the dividend for tax purposes occurs on December 31 of the year because a trust can only determine its residence on the last day of the fiscal year.

The authors discuss how this creates an issue where the beneficiary is an individual who dies during the year, specifically whether the dividend is taxable on the deceased individual’s terminal return or the estate’s return. For example, a trust receives a dividend on June 3 and distributes the dividend to an individual beneficiary on the same day but the dividend is considered to be allocated to the individual on December 31. The individual dies on July 31. Is the dividend allocated on December 31 taxable on the individual’s terminal return when the individual died 5 months earlier?

CRA view 2020-0839891C6 suggests that it is. In particular, the CRA view implies that a deceased individual’s tax year does not end on the date of death and instead continues until December 31. This could result in dividends that are paid after death through a trust being included in the terminal personal tax return rather than in the estate tax return.

This policy could derail post-mortem planning and appears to contradict certain provisions of the Income Tax Act that suggest a “death tax” regime. Specifically, subsection 70(5) provides that an individual is deemed to dispose of capital property at death and paragraph 249(1)(b) suggests the taxation year of the estate begins after the death of the individual.

In order to be sure dividends will be included in the estate and not the terminal return, the authors suggest waiting until after December 31 in the year of death to pay the amount to the beneficiaries’ estate. They also suggest a broader review of the tax system as a whole to minimize these contradictions.

About Derek de Gannes
Derek A. de Gannes: Senior Director, Private Client Services of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email:


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