Equity amount

For a given taxation year, the result of the following calculation (if it is positive):

A – B, where

A is the total of the following amounts:
- the average of the amounts that are equity contributions made to the trust by its specified non-resident beneficiaries before the beginning of each calendar month ending in the year; and
- the tax-paid earnings of the trust;
B is the average of the amounts paid or payable by the trust to its beneficiaries before the beginning of each calendar month ending in the year due to their interest in the trust, unless these amounts are:
- included in the beneficiaries' income as income allocated by the trust;
- subject to income tax under Part XIII of the Income Tax Act; or
- paid or payable to beneficiaries other than specified non-resident beneficiaries.

An equity contribution is:
- a transfer of property to the trust in exchange for an interest in the trust or a right to acquire such an interest; or
- a gratuitous transfer of property to the trust by a person that holds an interest in the trust.
The tax-paid earnings of a trust resident in Canada, for a given taxation year, correspond to the taxable income of the trust for the year minus the total amount of federal and provincial (Québec or another province in Canada) income tax payable on this income.
If the trust did not have the information for the period preceding the implementation of the thin capitalization rules in order to do the A – B calculation, it may have made an election with the Canada Revenue Agency to have the equity amount as at March 21, 2013, deemed to correspond to the FMV, as at that date, of all of its assets minus all of its liabilities. Such an election automatically applies for the purposes of Québec legislation.

End of note

Section 172