Principal Changes for 2020 in the Trust Income Tax Return

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Changes to the dividend tax credit rates

See the tables below for the dividend tax credit rates applicable to ordinary and eligible dividends that are paid or deemed paid in 2020. New rates take effect on January 1 of each year. 

If the dividends are received by a trust that is a testamentary trust whose taxation year began in 2019, use the dividend tax credit rate for ordinary dividends and the dividend tax credit rate for eligible dividends for that year.

Dividend tax credit rate 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 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 et 328 of Schedule B in section 5.2 of the Guide to Filing the Trust Income Tax Return (TP-646.G-V).

Changes to the dividend tax credit

The income tax payable by a trust for a taxation year is determined on the basis of the ratio between the trust's income earned in Québec and the trust's income earned in Québec and elsewhere or in Canada for the year.

For a taxation year, the amount of the dividend tax credit that the trust can deduct from its income tax payable for the year is determined on the basis of the ratio used to determine the income tax payable for the year.

For dividends received or deemed received after December 31, 2019, any trust resident in Québec on the last day of the taxation year can claim the dividend tax credit for the year. Moreover, such a trust may deduct the total amount of the dividend tax credit to which it is entitled for the year from its income tax payable without taking into account the ratio used to determine its income tax payable for the year.

Reduction of the general tax rate for SIFT trusts

A gradual reduction of the general corporation tax rate began in 2017. The current rate of 11.6% was reduced to 11.5% for 2020 on January 1.

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.

Disclosure of nominee agreements

Any trust that is party to a nominee agreement entered into in the context of a transaction or a series of transactions is required to file form TP-1079.PN-V, Disclosure of a Nominee Agreement. This requirement also applies to any trust that is a member of a partnership that is party to such an agreement.

The disclosure must be made by the later of the following:

  • the 90th day following the day the nominee agreement was concluded; or
  • December 23, 2020.

If the disclosure is not filed by the deadline, the parties to the nominee agreement will be solidarily liable for a $1,000 penalty. For every day after the deadline, an additional penalty of $100 will be imposed, up to a maximum of $5,000.

Disclosure of specified transactions and sham transactions

Other measures have been put in place to combat tax planning schemes that threaten the integrity of the tax system. Such measures include reinforcing the current mandatory disclosure mechanism and efforts to counter sham transactions.

For more information, see information bulletins 2019-5 and 2019-11, published respectively on May 1 and December 16, 2019, by the ministère des Finances du Québec.

Deferral of income tax payable resulting from the deemed disposition of an interest in a qualified public corporation

Some trusts are deemed to have disposed of certain property on a day determined by the Taxation Act (such as the 21st anniversary of the creation of the trust).

As of February 22, 2017, a trust can elect to defer the payment of income tax payable on the deemed disposition of its interest in a qualified public corporation. The trust must calculate the amount of the income tax to be deferred and provide satisfactory security by the payment deadline for its income tax payable for the taxation year in which the deemed disposition took place.

An interest in a qualified public corporation includes any qualified share held by the trust at the time of the deemed disposition that is a share:

  • included in:
    • a large block of shares of a qualified public corporation that gives the trust more than one third of the public corporation's voting rights, or
    • a portion of a large block of shares of a qualified public corporation that gives the owner (the trust and all other members of a related group) more than one third of the public corporation's voting rights;
  • the capital stock of a private corporation provided the corporation meets the following requirements:
    • the percentage of the fair market value (FMV) of the assets of the private corporation attributable to a large block of shares (or to a portion of a large block of shares) of the capital stock of a qualified public corporation in proportion to the FMV of all assets of the private corporation is:
      • more than 95% if the deemed disposition took place after February 21, 2017, but before November 7, 2019,
      • more than 50% if the deemed disposition took place after November 6, 2019,
  • the large block of shares (or the portion of the large block of shares) of the qualified public corporation gives the owner (the private corporation alone or the corporation and all other members of a related group) more than one third of the voting rights of the qualified public corporation.

For more information, see section 5.1.5 of the Guide to Filing the Trust Income Tax Return (TP-646.G-V).

Extension of the income-averaging period and the reporting period for a trust that is a certified forest producer

As of March 18, 2016, a trust that is a certified forest producer (or a trust that is a member of a partnership that is a certified forest producer) under the Sustainable Forest Development Act in respect of a private forest can ask to average, over a period not exceeding seven years, a portion of its income derived from non-retail sales of timber produced in the private forest.

As of March 10, 2020, if such a trust has income derived from the sales of timber subject to the income-averaging mechanism and the sales were concluded after March 9, 2020, but before January 1, 2026, the trust can ask to have a portion of the income derived from the sale averaged over a period not exceeding ten years. Therefore, for each of the ten taxation years following the year for which the deduction was claimed, the trust must include, in the calculation of its taxable income, at least 10% of the amount deducted, up to the amount by which the amount deducted exceeds the aggregate of the amounts already included.

Certified forest producers in respect of a private forest that concluded sales of timber after March 17, 2016, but before March 10, 2020, will continue to benefit from the seven-year averaging period for the income derived from those sales. The other terms and conditions of the income-averaging mechanism for certified forest producers in respect of a private forest remain unchanged.

For more information, see the instructions for lines 55a and 55 in Part 4 of the Guide to Filing the Trust Income Tax Return (TP-646.G-V).

Extension of the eight-year period for amateur athlete trusts

Under certain conditions, an amateur athlete trust can be created for an amateur athlete who is a member of a registered Canadian amateur athletic association and is eligible to compete in international sporting events as a Canadian national team member.

An “amateur athlete” is an individual who:

  • is a member of a registered Canadian amateur athletic association;
  • can take part in an international sporting event as a member of a Canadian national team; and
  • is not a professional athlete.

If an athlete has not participated in an international sporting event as a member of a Canadian national team for eight years, amounts held by the amateur athlete trust at the end of the eight-year period are deemed to have been distributed to the athlete at that time. However, if the eight-year period ended in 2019, it is extended for another year so that it will end in 2020, and the deemed distribution of amounts held by the trust will occur at the end of the 2020 taxation year.

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