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Exemption From Filing the Trust Income Tax Return

Certain trusts are exempt from filing the Trust Income Tax Return (form TP-646-V). This is the case for the following trusts:

  • a trust established under a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF), except if it must pay income tax under Part I of the Taxation Act, such as:
    • income tax on income derived from the operation of a business or from a non-qualifying investment, or on the capital gain derived from the disposition of such an investment, or
    • income tax on the taxable income for any taxation year after the year that follows the year of death of the last annuitant of the plan or fund (the trust must file an RL-2 slip [see courtesy translation RL-2-T] for any amount paid as a tax-paid amount);
  • a trust established under a tax-free savings account (TFSA) or a first home savings account (FHSA), except if the trust must pay income tax on income derived from the operation of a business or from a non-qualifying investment, or on the capital gain derived from the disposition of such an investment (the trust must file RL-1 slips [see courtesy translation RL-1-T] for persons to whom it pays investment income earned following the death of the account holder);
    Note

    The TFSA or FHSA holder, the trust and the issuer are solidarily liable for the payment of the income tax on the income from the operation of a business by a trust established under a TFSA or an FHSA. 

    The solidary liability of an issuer at any time in respect of business income earned by the TFSA or FHSA is limited to the value of the property held in the TFSA or FHSA they control at that time as legal representative of the trust plus the amount of all the distributions of property from the TFSA or FHSA as of the date on which the notice of assessment was issued. 

    End of note.
  • a trust established under a profit-sharing plan (such a trust must nonetheless file RL-25 slips [see courtesy translation RL-25-T]);
  • a trust established under a deferred profit-sharing plan (DPSP), a registered pension plan (RPP) or a registered supplementary unemployment benefit plan (RSUBP);
  • a trust established under a pooled registered pension plan (PRPP) or a voluntary retirement savings plan (VRSP), except if the trust must pay income tax on income derived from the operation of a business;
  • a retirement compensation arrangement (RCA) trust, except for the portion that constitutes an employee benefit plan;
  • a trust established under a registered education savings plan (RESP), except if:
    • a tax is payable under Part I of the Taxation Act with respect to property the trust holds that is not a qualifying investment for it or to a capital gain derived from the disposition of such property,
    • special tax is payable under Part III.15.1 of the Taxation Act
    Note
    In all cases, the trust must file RL-1 slips for accumulating income payments and educational assistance payments.
    End of note.
  • a trust established under a registered disability savings plan (RDSP), except if a tax is payable under Part I of the Taxation Act on certain loans it took out, due to the operation of a business, or with respect to property it holds that is not a qualifying investment for it or to a capital gain derived from the disposition of such property;
    Note
    In all cases, the trust must file RL-1 slips for disability assistance payments.
    End of note.
  • an environmental trust, that is, a trust that is maintained solely to finance the reclamation in Canada of a site that is or has been used principally for one or more of the following purposes:
    • the operation of a mine,
    • the extraction of clay, peat, sand, shale or aggregates (including dimension stone and gravel),
    • the deposit of waste,
    • the operation of a pipeline, if the trust was created after December 31, 2011;
    Note
    An environmental trust that is a resident in Québec at the end of the taxation year must nonetheless file form TP-1129.53-V, Income Tax Return for Environmental Trusts, in accordance with Part III.12 of the Taxation Act. For the purposes of this Part, an environmental trust is deemed to be resident in the province in which the site in respect of which the trust is maintained is situated.
    End of note.
    Important

    If a trust ceases to be an environmental trust:

    • its taxation year is deemed to end immediately before that time;
    • it is deemed to have disposed of all its property at its fair market value immediately before that time and to have reacquired it immediately after that time at a cost equal to the proceeds of disposition; and
    • it ceases to be exempt from the requirement to pay income tax under Part I of the Taxation Act.
    End of note.
  • a trust governed by an eligible funeral arrangement or a cemetery care trust (the trust must nonetheless file an RL-3 slip [see courtesy translation RL-3-T] for any amount to be included in the income of a beneficiary).
Note
The capital gain (or loss) derived from the disposition of property used in the operation of a business is deemed to be business income (or loss). No deduction can be claimed on line 81 of the Trust Income Tax Return (TP-646-V) for the portion of income paid or payable to a beneficiary.
End of note.

The following entities are also exempt from filing a trust income tax return:

  • registered charity, which must nonetheless file form TP-985.22-V, Information Return for Registered Charities and Other Donees;
  • a tax-exempt entity that is an agricultural organization, a board of trade (chamber of commerce), or a non-profit organization (club, society or association) that is not considered to be a charity.

However, the latter must file form TP-997.1-V, Information Return for Tax-Exempt Entities, if any one of the following apply:

  • the total amount of taxable dividends or the total amount of interest, rentals or royalties that the entity received or was entitled to receive during its fiscal period was more than $10,000; 
  • at the end of the previous fiscal period, the entity's total assets, determined according to generally accepted accounting principles, exceeded $200,000; or 
  • the entity was required to file form TP-997.1-V for a previous fiscal period.
Note End of note

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