Trusts Subject to a Loss Restriction Event

Coronavirus (COVID-19)

Click Coronavirus Disease (COVID-19) to see whether the measures adopted by Revenu Québec apply to the information on this page.

A tax rule called the “attribute trading restriction” prevents the trading of corporate tax attributes among persons dealing at arm's length using the acquisition of control of the corporation in order to take advantage of the unused attributes of the corporation.

Trusts are subject to a similar rule, with the necessary adaptations (for example, instead of the “acquisition of control of the corporation,” we will refer to a “majority-interest beneficiary of the trust”).

At any time after March 20, 2013 (the “given time”), where a person becomes a majority-interest beneficiary of a trust or a group of persons becomes a majority-interest group of beneficiaries of a trust, the trust is subject, at that time, to a loss restriction event. The trust can therefore no longer take advantage of certain tax attributes. As a rule, where a tax attribute is a loss (such as a net capital loss, non-capital loss and farm loss), the following restrictions apply:

  • If the loss is sustained in a taxation year that ended before the given time, it cannot be carried forward to a taxation year ending after the given time.
  • If the loss is sustained in a taxation year that ends after the given time, it cannot be carried back to a taxation year that ended before the given time.

The use of the term “majority-interest beneficiary” in this context is similar, with some differences, to the use of the term in the context of a loss sustained on the disposition of property involving an affiliated person (see Majority-Interest Beneficiary).

If the trust became subject to a loss restriction event during the year, check box 29 of the return and enter the date on which the trust became subject to a loss restriction event.

Exceptions

In the application of this tax rule, a person is not deemed to become a majority-interest beneficiary of a trust or a group of persons is not deemed to become a majority-interest group of beneficiaries of a trust based solely on the occurrence of one of the following events:

  • The trust's equity is acquired by:
    • a person affiliated with the trust immediately before the acquisition;
    • a person from another person with which the person was affiliated immediately before the acquisition;
    • a succession from a person following the person's death; or
    • a person from the succession of an individual who was affiliated with the person immediately before the individual's death.
  • The terms of the trust are amended or certain transactions are made in accordance with the terms of the trust or in accordance with a decision of a trustee, if each majority-interest beneficiary of the trust or each member of a majority-interest group of beneficiaries of the trust immediately after such an event was affiliated with the trust immediately before that time.
  • All of the trust's equity is transferred to a corporation, a partnership or another trust (the “acquirer”), if the only consideration for the transfer is equity (other than a debt) of the acquirer and the acquirer is a new entity (an entity that never held, before the transfer, property other than property having nominal value) that will not afterwards become a subsidiary of another entity.
  • At a given time, some of the trust's equity is transferred to a corporation, a partnership or another trust, provided all of the following conditions are met:
    • immediately before the given time, a person is a majority-interest beneficiary of the trust or a group of persons is a majority-interest group of beneficiaries of the trust (the “person or group of persons concerned”);
    • immediately after the given time, the person or group of persons concerned, as the case may be, and no other person or group of persons, is:
      • if the acquirer is a corporation, a person by whom, or a group of persons by which, the corporation is controlled directly or indirectly, in any manner whatever,
      • if the acquirer is a partnership, a majority-interest partner, or a majority-interest group of partners, of the partnership,
      • if the acquirer is a trust, a majority-interest beneficiary, or a majority-interest group of beneficiaries, of the trust;
    • At no time during a series of transactions or events that includes the transfer did the person or group of persons concerned, as the case may be, cease to be a person or group of persons described in any of the three above paragraphs in respect of the acquirer.
  • The acquisition or the disposition of equity by a trust that is an investment fund takes place immediately before the acquisition or disposition, and the acquisition or disposition is not part of a series of transactions or events that includes the trust ceasing to be an investment fund.

Deemed end of taxation year

Where a trust is subject to a loss restriction event in a taxation year, the trust's taxation year is deemed to end immediately before the acquisition of control of the trust. However, the trust's taxation year is not deemed to end immediately before the acquisition of control of the trust for the purposes of determining the deadline for filing the Trust Income Tax Return (TP-646-V) and RL-16 slips, for the payment of a balance of income tax and for making the election to be considered a mutual fund trust under federal legislation.

Note
  • For the purposes of a loss restriction event, a partnership is considered to be a person.
  • The restrictions applicable to the carry-over of a loss do not apply to non-capital losses and farm losses if the trust sustains the losses in the operation of a for-profit business or a business carried on with a reasonable expectation of profit:
    • throughout the year to which the loss is carried forward (loss sustained before the given time),
    • throughout the year in which the loss was sustained and in the year to which the loss is carried back (loss sustained after the given time).

Fair. For all.

One vision. Concrete actions.

Read all about how we work to support and inform you. Our vision and values guide us as we carry out our role.

Veuillez patienter