Exemption from Filing the Trust Income Tax Return

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As a rule, trusts that are not listed in the Types of Trusts section are exempt from filing the trust income tax return. 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 (however, 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), 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

    If a trust established under a TFSA is required to pay income tax on business income, the trust and its legal representative (TFSA trustee) are solidarily liable for the payment of income tax.

    As of 2019, the TFSA holder must also pay income tax on the income from a business operated by a trust established under a TFSA. The solidary liability of a trustee of a TFSA at any time in respect of business income earned by the TFSA will be limited at all times to the property held in the TFSA at that time plus the amount of all the distributions of property from the TFSA as of the date on which the notice of assessment was issued.

  • 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 special tax is payable under Part III.15.1 of the Taxation Act (such a trust must nonetheless file RL-1 slips [see courtesy translation RL-1-T] for accumulating income payments and educational assistance payments). Since March 23, 2017, such a trust has had to pay income tax on an amount that would correspond to its taxable income for the year under Part I of the Taxation Act if its income or losses were derived solely from its non-qualifying investments and its capital gains or losses were derived solely from the disposition of non-qualifying investments;
  • a trust established under a registered disability savings plan (RDSP), except if income tax is payable under Part I of the Taxation Act on, for example, the income or capital gain derived from the disposition of a non-qualifying investment (such a trust must nonetheless file RL-1 slips [see courtesy translation RL-1-T] for disability assistance payments). Since March 23, 2017, such a trust has had to pay income tax on an amount that would correspond to its taxable income for the year under Part I of the Taxation Act if its income or losses were derived solely from its non-qualifying investments and its capital gains or losses were derived solely from the disposition of non-qualifying investments;
  • an environmental trust maintained to finance the reclamation in Québec of a site used principally as a waste disposal site, for the operation of a mine or pit from which was extracted clay, peat, sand, shale or aggregate materials, or for the operation of a pipeline (such a trust that is resident in Québec at the end of the taxation year must nonetheless file form TP-1129.53-V, Income Tax Return for Environmental Trusts);
    Important

    At the time 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 of 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.
  • a trust governed by an eligible funeral arrangement or a cemetery care trust (such a 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.

The following entities are also exempt from filing an 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 entities must file form TP-997.1-V, Information Return for Tax-Exempt Entities, if any one of the following apply:

  • the taxable dividends, interest, rentals or royalties that the entity received or was entitled to receive during its fiscal period totalled 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.

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