These rules are very complicated and if you think you may be affected, you should contact your regular KPMG adviser immediately for assistance as the deadline is fast approaching.
These trusts must also file trust income tax returns for the 2007 to 2012 taxation years, foreign property returns (T1135) for the 2007 to 2012 taxation years and foreign affiliate or controlled foreign affiliate returns (T1134) for the 2007 to 2011 taxation years by June 26, 2014.
The new rules, which generally apply to all taxation years after 2006, deem an NRT to be resident in Canada for a taxation year if the trust has a "resident contributor" or a "resident beneficiary" in the year. Under this provision, a trust is deemed (among other things) to be resident for the purposes of the trust's liability for Part I and Part XIII tax and for the purposes of filing of information returns for foreign property and foreign affiliates under sections 233.3 (Form T1135) and 233.4 (Form T1134).
An NRT (other than an "exempt foreign trust") that provides benefits for services rendered by an employee of a Canadian-resident employer may be deemed resident in Canada. If any person (including a foreign entity which, for example, may be the foreign parent of the Canadian resident employer) makes contributions for such services, the Canadian-resident employer is deemed to have contributed to the NRT. As a result, the NRT may be deemed to have a resident contributor or resident beneficiary for the purposes of the rules and, thus, is deemed resident in Canada and is subject to tax on its worldwide income.
Relief available - Time is of the essence
Under these rules, an "electing trust" can elect to treat the "non-resident portion" of the trust's property and income to be separate, and to be held or earned by a notional "non-resident portion trust". The non-resident portion trust is deemed not to have a resident contributor or resident beneficiary and, accordingly, is not taxable in Canada. The trust must file an election in the first taxation year in which the rules apply to the trust and in which it has a "non-resident portion", otherwise it will be taxed on its worldwide income for all subsequent taxation years with no relief for the "non-resident portion". This election appears to be irrevocable.
Assuming a December 31 taxation year-end, the "electing trust" elections for the 2007 to 2012 taxation years are due by June 26, 2014, with the 2013 election due with the 2013 information return. As there is no extension of time for filing this election, if this deadline is missed the trust will be taxable on its worldwide income without any relief for the non-resident portion.
In addition, an "electing contributor" can elect to be taxed on income that otherwise would be taxable in the "electing trust". This election may be advantageous if an "electing contributor" is a corporation with income taxed at a lower tax rate than the deemed resident trust's tax rate. The "electing contributor" elections for the 2010 to 2012 taxation years are due by June 26, 2014. Note that this election cannot be made for taxation years that end before March 5, 2010, and that the deadline for notifying the NRT for an "electing contributor" election for 2013 may no longer be available. However, this election can still be made for 2014 and future years to mitigate some of the tax impact assuming the NRT is notified by January 30, 2015.
Filing deadline - By June 26, 2014
Where a trust has a December 31 year-end, the following returns and forms are due by June 26, 2014:
- All of the deemed resident trust's T3 Trust Income Tax and Information Returns for the 2007 to 2012 taxation years
- T1135 forms for the 2007 to 2012 taxation years
- T1134 forms for the 2007 to 2011 taxation years.
The regular filing deadline applies to the deemed resident trust's T3 return for its 2013 taxation year, and T1134 for the 2012 taxation year. The T1135 deadline for the 2013 taxation year has been extended to July 31, 2014.
Filing deadlines - Forms T1141 and T1142
If you contribute to the deemed resident trust you may also be required to file Form T1141, "Information Return in Respect of Transfers or Loans to a Non-Resident Trust", for the 2007 to 2013 taxation years. For these years, this form is due on the due date of the contributor's income tax return for its taxation year that includes June 26, 2013. For example, if the contributor is a corporation with a December 31 year-end, the form must be filed by June 30, 2014. There is no change for employees who are beneficiaries of the non-resident trust that receive distributions. They would have filed Form T1142, "Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust", for the year for any distribution that was received.
For more information, contact your KPMG adviser.
Information is current to June 17, 2014. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500