Principal Changes for 2019 in the Trust Income Tax Return

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Changes to the dividend tax credit rates and the gross-up rate applicable to ordinary dividends

The gross-up rate applicable to ordinary dividends paid or deemed paid after 2018 is reduced from 16% to 15% of the actual amount of dividends.

In addition, the following tax credit rates apply to the gross-up amount of ordinary dividends and eligible dividends that are paid or deemed paid in 2019:

  • The rate applicable to ordinary dividends is 5.55%.
  • The rate applicable to eligible dividends is 11.78%.

Furthermore, dividend tax credit rates are gradually being reduced until December 2021. New rates take effect on January 1 of each year. The tables below show the rates applicable to the gross-up amount and the actual amount of ordinary dividends and eligible dividends.

If the dividends are received by a trust that is a testamentary trust whose taxation year began in 2018, use the gross-up rate and the dividend tax credit rate for ordinary dividends and the dividend tax credit rate for eligible dividends for that year.

Dividend tax credit rate (percentage) applicable to the gross-up amount of a dividend received or deemed received
2019 2020 2021
Tax credit rate for eligible dividends 11.78 11.70 11.70
Tax credit rate for ordinary dividends 5.55 4.77 4.01
Dividend tax credit (percentage) rate applicable to the actual amount of a dividend received or deemed received
2019 2020 2021
Tax credit rate for eligible dividends 16.2564 16.146 16.146
Tax credit rate for ordinary dividends 6.3825 5.4855 4.6115

For more information, see the instructions for lines 326 and 328 of Schedule B in section 5.2 of the Guide to Filing the Trust Income Tax Return (TP-646.G-V).

Reduction of the general tax rate for SIFT trusts

A gradual reduction of the general corporation tax rate began in 2017. The rate is 11.7% for 2018, 11.6% for 2019 and 11.5% for 2020. The rate reductions take effect on January 1 of each year.

A specified investment flow-through (SIFT) trust that has an establishment in Québec must calculate the non-deductible allocations amount and allocate the amount to its beneficiaries as an eligible dividend (see Schedule E of the Trust Income Tax Return [TP-646.G-V]). It must also pay income tax on the taxable distributions amount at the same tax rate as corporations.

For more information about this type of trust, see Specified Investment Flow-Through Trust.

Capital cost allowance

New capital cost allowance (CCA) rules apply to depreciable property acquired after November 20, 2018. The rules concern the CCA for the year of acquisition of certain property, the calculation of the temporary additional CCA of 60% for property in classes 50 and 53 and the implementation of a permanent additional CCA of 30% for certain property acquired after December 3, 2018.

Accelerated CCA for qualified intellectual property or general-purpose electronic data processing equipment

A trust can deduct the full acquisition cost of property that is qualified intellectual property or general-purpose electronic data processing equipment for the taxation year in which the property became available for use.

General-purpose electronic data processing equipment is property included in class 50 of Schedule B to the Regulation respecting the Taxation Act.

If a trust acquired property that is not considered qualified intellectual property or general-purpose electronic data processing equipment, but is nevertheless accelerated investment incentive property, the trust can qualify for the CCA rules applicable to such property.

Change to and elimination of the additional CCA of 60%

The amounts that a trust can deduct as an additional CCA of 60% for qualified property in calculating its income for the taxation year in which the property becomes available for use and for the following year have been changed. The changes apply to qualified property acquired after November 20, 2018, and before December 4, 2018. The additional CCA of 60% is eliminated as of December 4, 2018.

Introduction of an additional CCA of 30%

A permanent additional CCA of 30% for certain property has been introduced. Consequently, a trust can deduct from its business income for a taxation year an amount corresponding to 30% of the CCA deducted from its income for the previous taxation year with respect to the following property, if the trust acquired the property after December 3, 2018:

  • machinery or equipment used in manufacturing or processing, namely property included in class 53 of Schedule B to the Regulation respecting the Taxation Act;
  • clean energy generation equipment, namely property included in class 43.1 of the schedule or property included in class 43.2 of the schedule;
  • general-purpose electronic data processing equipment and systems software for that equipment, namely property included in class 50 of the schedule, other than property that had allowed or could have allowed the taxpayer to claim the additional capital cost allowance of 60%. Moreover, to give entitlement to the additional CCA, the property must:
    • be new at the time of its acquisition,
    • be used within a reasonable time after being acquired,
    • be used primarily in Québec in the course of carrying on a business for a period of at least 730 consecutive days after the property's use began;
  • qualified intellectual property.
Mutual fund trusts: new rules concerning allocation to redeemers methodology

The income and gains accrued by a mutual fund trust and allocated to its unitholders are generally subject to income tax for the unitholders but not for the trust. When a mutual fund trust allocates, for a taxation year, capital gains or ordinary income to its unitholders, it is entitled to deduct the allocated amounts from its income. However, the use of the allocation to redeemers methodology to allocate income and capital gains to unitholders who redeem their units allows for the inappropriate deferral of income tax or for the conversion of ordinary income subject to the standard income tax rate to capital gains subject to a lower income tax rate.

Consequently, for taxation years that begin on or after March 19, 2019, any deduction claimed by a mutual fund trust for the portion of capital gains that is allocated to the unitholder upon the redemption of the unitholder's units and that exceeds the capital gain that would otherwise have been realized by the unitholder will be disallowed if the amount allocated is subtracted from the unitholder's redemption proceeds.

Similar changes to the allocation of mutual trust fund income further to the redemption of units by unitholders who hold their units as income. Therefore, upon the redemption of units, a mutual fund trust can no longer deduct ordinary income allocated to a unitholder if the amount is subtracted from the redemption proceeds.

Gifts of cultural property

For taxation years beginning on or after March 19, 2019, a gift of cultural property made by a trust to certain establishments or public bodies in Canada no longer needs to meet the requirement of "national importance" to give entitlement to the tax credit for donations and gifts and to the capital gains exemption.

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