2 June 2026 STEP Roundtable

This sets out questions that were posed, and provides summaries of the preliminary oral responses given, at the 2026 STEP CRA Roundtable, which was held in Toronto on June 2, 2026. We have mostly chosen our own titles. The Roundtable was hosted by: Michael Cadesky (Cadesky Tax); and Angela Ross (PwC).

CRA Panelists:

Katie Campbell, CPA, CA, Ottawa: Acting Manager, Trust Section II, Financial Industries and Trusts Division, Income Tax Rulings Directorate
Steve Fron, CPA, CA, TEP, Oshawa: Industry Sector Specialist, Trust Section Il, Financial Industries and Trusts Division, Income Tax Rulings Directorate

Q.1 - Subsequent bequests to QDT

To be a qualified disability trust (“QDT”), a number of conditions must be met including that the trust must be a testamentary trust that arose on and as a consequence of a particular individual’s death. It is also the case that only one trust can be a QDT for a particular disabled beneficiary.

Assume divorced parents (and possibly grandparents) would like to contribute to a trust for the benefit of a disabled child and so coordinate their wills so that the first to die creates a trust for the benefit of the disabled child and the surviving parent contributes to the trust from their estate. For example, each will provides that if the deceased is the first to die, the trust is to be created and funded with assets from that deceased’s estate. If the deceased is not the first to die, the will provides that assets are to be contributed to the trust created under the terms of the will of the first to die.

Assuming such planning works for legal purposes under the applicable provincial rules, and that all of the other conditions for a QDT are met, would the CRA agree that the trust created under the terms of the will of the first parent to die can continue to qualify as a QDT after it receives a contribution from the estate of the surviving parent after their death?

CRA Preliminary Response

Fron: The definition of “qualified disability trust” (QDT) is in s. 122(3) sets out various conditions. As the questions mentions, the key conditions are that the trust must be a testamentary trust that arose on and as a consequence of a particular individual’s death, and that there be only one QDT per particular disabled beneficiary.

The term "testamentary trust" itself is defined in subsection 108(1). In general terms, it refers to a trust or estate that arises on and as a consequence of an individual’s death, subject to specific exclusions set out in paragraphs (a) to (d) of that definition. The exclusion in paragraph (b) applies if any property is contributed to the trust otherwise than by an individual on or after the individual’s death and as a consequence thereof.

If we put a positive spin on this, a contribution to a trust by an individual on or after the individual’s death and as a consequence thereof does not disqualify a trust as a testamentary trust, provided the trust otherwise qualifies. This is because paragraph 248(8)(a) treats a transfer, distribution, or acquisition of property under or as a consequence of the terms of the will or other testamentary instrument of the taxpayer as a transfer, distribution, or acquisition of property as a consequence of the death of the taxpayer. Therefore, when the individual bequeaths property in their will to an existing testamentary trust, the contribution does not disqualify the existing trust.

Furthermore, if the trust already qualifies as a QDT, such a contribution will not, in itself, cause the trust to lose its QDT status.

Turning to the example in the question: let us say Parent A dies first, and a QDT is established under their will. If Parent B dies later and property is bequeathed to the same trust under the terms of Parent B’s will, that subsequent contribution would not disqualify the trust from being a testamentary trust or a QDT because the transfer is made on and as a consequence of Parent B’s death. The same reasoning would apply where another individual, such as a grandparent, bequeaths property in their will to the child’s existing QDT.

To conclude, there is one caveat to note: whether a particular transfer satisfies the requirement of being made on or after death and as a consequence thereof is ultimately a question of fact and law that can only be determined after a review of all the facts and circumstances applicable to a particular situation.

Q.2 - Filing requirements for successive testamentary trust

It is common for a testamentary spousal trust (or “first generation trust”) to provide that, after the death of the spouse, any remaining property be held in one or more separate trusts for the benefit of the successor or remainder beneficiaries (each a “Successor Trust”). For example, when a surviving parent dies, it is not uncommon for the remaining trust property to pass to Successor Trusts for each of the children and/or more remote issue to be held by the trustees until they reach an identified age.

Where the terms of a testamentary spousal trust as described in subsection 70(6) provide the trustees with the discretion to make capital distributions to the spouse while alive, it is possible that no property may be in the trust at the time of the spouse ’s death so that the Successor Trusts are never funded.

1. Assuming a Successor Trust is not a trust described in any of paragraphs 150(1.2)(a) to (r), while the surviving spouse is alive, is the Successor Trust required to file a T3 Trust Income Tax and Information Return (“T3 Return”), including Schedule 15, Beneficial Ownership Information of a Trust (“Schedule 15”)?

2. Assuming the following facts, can the CRA advise when the 21-year deemed disposition rule in subsection 104(4) would apply to the Successor Trust?

• the estate of the first spouse to die is created on July 1, 2015 (i.e., the date of death);
• the testamentary spousal trust meets the conditions in subsection 70(6), and is funded on August 1, 2015;
• the surviving spouse passes away on April 15, 2025;
• the Successor Trust is created on February 15, 2026; and
• both the testamentary spousal trust and Successor Trust are resident in Canada.

3. Would the answer to Part 2 change if, instead of a testamentary spousal trust, the first generation trust is for the benefit of a non-spouse lifetime beneficiary?

CRA Preliminary Response

Q.2.1

Fron: As with the previous answer, the answer turns on questions of fact and law that can only be determined after a review of all facts and circumstances.

The key points are that a testamentary trust is generally the estate of a deceased individual, and other trusts created under the terms of the will of that individual will generally be testamentary trusts, subject to certain exceptions. The definition of "testamentary trust" does not contemplate the timing of the creation of such a trust.

As far as the timing goes, the CRA has traditionally not attributed any tax consequences to the transition from estate administration to trust administration. It has been our long-standing view that generally trusts created out of the residue of an estate arise on the death of an individual. However, our response to Question 1 of the 2016 STEP CRA Roundtable noted that ultimately it is a question of legal fact as to when such trusts are established. This will determine the filing requirements for tax returns under the Act.

Because it is a factual determination, we simply cannot provide a one-size-fits-all answer for when a successor trust is created. However, it is possible that there can be situations where the date of creation of a testamentary trust is not concurrent with the testator's date of death. For example, in the case of the successor trust as described in the scenario provided, where certain terms of a will may provide that, on the death of the first-generation income and capital beneficiary (in this case, the spouse), the trustee is to divide the remaining property into equal parts to be held in a new trust for the interest of each child, such trust or trusts may be viewed as being created at a later point in time than the testator’s date of death.

That date of creation of the testamentary trust is relevant to the application of the trust reporting rules in section 150 and in subsection 204.2(1) of the Income Tax Regulations (the "Regs"). As a refresher on those rules, the written response provides a detailed walkthrough of ss. 150(1)(c), 150(1.1), and 150(1.2), as well as s. 204.2(1) of the Regs, and how they are all connected.

Relating them to the scenario presented in the question: the problem in the question is that we know the successor trust is not a trust described in ss. 150(1.2)(a) to (r). This brings with it two implications.

Firstly, the trust will be obligated to file a return of income pursuant to s. 150(1)(c) in respect of that taxation year because subsection 150(1.2) prevents the successor trust from being able to rely on the exceptions to filing a returns contained in s. 150(1.1)(b).

Secondly, the trust will not be exempted from the additional information reporting requirements imposed by subsection 204.2(1) of the Regs. Therefore, Schedule 15 will be required.

Those two requirements will apply to the successor trust for each taxation year ending after its creation date in which it does not meet any of the exceptions listed in subsection 150(1.2).

Q.2.2

Fron: Subsection 104(4) provides for the deemed disposition date of certain capital property of trusts that are subject to that provision. However, generally, where capital property is transferred at a particular time by a trust to another trust in circumstances in which s. 107(2) or certain other provisions apply, the rules of s. 104(5.8) will apply.

Subsection 104(5.8) provides that, for the purpose of the successor trust's disposition day in s. 104(4), the first day relevant date ending at or after the transfer is deemed to be the earliest of five different dates. In this case, only two dates are relevant, and they are found in ss. 104(5.8)(a)(i)(A) and 104(5.8)(a)(i)(B).

The first date to consider is the 21-year deemed disposition date of the transferor trust, i.e., the testamentary spousal trust, that ends at or after the transfer, as determined by subsection 104(4). That date, in this case, is April 15, 2046, because there would have been a deemed disposition for the testamentary spousal trust on the survivor spouse’s death, which was April 15, 2025. That date works out to be the earliest of the two dates.

The second date to consider is the 21-year deemed disposition date of the transferee trust, i.e., the successor trust, that ends at or after the transfer, as determined by subsection 104(4). That date would be February 15, 2047, because that is 21 years after the date of the creation of the successor trust.

Therefore, the first date, April 15, 2046, is the earliest date. As a result, this becomes the deemed disposition date for the successor trust.

Q.2.3

Because we are no longer dealing with a testamentary spousal trust, there is no deemed disposition anymore on the death of the beneficiary.

For the first-generation trust date, regarding what the date would be under 104(4), it becomes July 1, 2036, because it is based on the 21 years after the time that the first spouse's estate began, and that is when we would consider the first-generation trust to have been created.

That remains the earliest of dates because the second date – of deemed disposition for the transferee trust - does not change: it is still February 15, 2047.

Q.3 – S. 94(3) trust and T3/ Sched 15 reporting

For estate planning purposes, an individual resident in Canada establishes a U.S. resident trust that will be a beneficiary under that individual’s last will and testament. The trust is settled with a $20 bill. Such planning is typical for individuals providing a legacy for a child who is a U.S. person so that the legacy received is not part of that child’s estate for U.S. estate tax purposes. No other property will be transferred to the trust until after the individual dies. As such, until other property is transferred, the trust will have no income or gains.

Pursuant to subsection 94(3), the trust will be deemed to be resident in Canada and, pursuant to subparagraph 94(3)(a)(vii) will be subject to the obligations under Division I as if a resident of Canada.

Can the CRA confirm that if the only property of the trust in a particular tax year is the $20 bill, the trust is exempt from filing a T3 Return by virtue of subsection 150(1.1) assuming it meets all the conditions of that subsection? Can the CRA also confirm that the trust is not obligated to comply with section 204.2 of the Regulations (i.e., filing a Schedule 15)?

CRA Preliminary Response

Campbell: Based on the facts provided in the question, the short answer is that there is no requirement to file a T3 return or a Schedule 15.

Where subsection 94(3) applies to a non-resident trust for a tax year, the trust is deemed to be resident in Canada throughout the year for certain purposes, including for the purpose of ss. 150 to 180. In the case of an estate or trust, a return of income must be filed within 90 days from the end of the year. S. 150(1.1) provides exceptions from these filing requirements. Specifically, s. 150(1.1)(b) relieves the trust from a filing obligation where the trust has no tax payable, no taxable capital gains, and no dispositions of taxable capital property.

However, the exceptions in s. 150(1.1) are limited by s. 150(1.2). S. 150(1.2) states that the filing requirements in s. 150(1) may continue to apply if the trust is resident in Canada and is an express trust or, for civil law purposes, a trust other than a trust that is established by law or by judgment. However, if the trust is a trust described in any of the ss. 150(1.2)(a) to (r), the exceptions in s. 150(1.1) remain available to the trust.

In this case, the trust is a trust described in s. 150(1.2)(b) for the particular tax year, since the trust holds assets with a total fair market value that does not exceed $50,000 throughout the year — it only has $20. Therefore, s. 150(1.2) will not limit the application of the exceptions in s. 150(1.1). Since the trust has not realized any income or gains and has not disposed of any capital property in the tax year, the exception in paragraph 150(1.1)(d) applies. This means that the trust will not be required to file a T3 return for the particular tax year.

In addition, s. 204.2 of the Regulations does not apply since the trust is a trust described in s. 150(1.2)(b). As a result, Schedule 15 is not required to be filed.

Even though there is no filing requirement under s. 150, the application of Regulation 204 must be considered because the T3 return is both an income tax return and an information return. Under section 204 of the Regulations, a trust is required to file a T3 return if the trustee is acting in a fiduciary or similar capacity and either controls or receives income, gains, or profits. However, Regulation 204 does not apply in this case because the trustee does not control or receive any income, gains, or profits in a fiduciary capacity in the particular tax year.

Q.4 - Vefghi and timing

The Federal Court of Appeal in Canada v. Vefghi Holding Corporation[1] held that the relevant time for determining whether a payer corporation (“Opco”) is “connected” with a corporate beneficiary (“Benco”) receiving the dividend income as a distribution from a shareholder trust is the last day of the trust’s taxation year (the trust’s “Particular Taxation Year”); that is the day the corporate beneficiary is deemed to have received a taxable dividend by interpreting subsection 104(19). As a result, the Federal Court of Appeal concluded in the Vefghi decision that the connected test for the purposes of Part IV tax must be conducted at the end of the trust’s Particular Taxation Year.

1. Can the CRA confirm whether the same rationale would apply to capital dividends, having the meaning assigned in subsection 83(2), received by Benco by way of distributions from the trust? Specifically, when would Benco include the capital dividend received in its capital dividend account as defined in subsection 89(1) (“Capital Dividend Account”)?

2. Assume the trust realized a capital gain on the disposition of a capital property in a Particular Taxation Year and distributes the whole of the capital gain (the taxable and non-taxable portions) to Benco before the end of that Particular Taxation Year. Can the CRA confirm when Benco would include the non-taxable portion of the capital gain in its Capital Dividend Account?

3. Assume the trust is a graduated rate estate (“GRE”), as defined in subsection 248(1), with an off-calendar year end of, say, February 28 and Benco has a December 31 calendar year end. If the GRE earns a taxable dividend or realizes a capital gain in the period from March 1 to December 31 in a particular year, and distributes those amounts to Benco before the end of December 31 of that year, in what year does Benco report the income or taxable capital gains?

CRA Preliminary Response

Campbell. For Part 1 and Part 2 of the response, assume that Benco is a “private corporation” as defined in s. 89(1) and is entitled to maintain and make additions to a capital dividend account (CDA) at all relevant times. Throughout, this response refers to ss. 104(19), 104(20), and 104(21), and assumes that all necessary conditions for the application of these subsections have been met and that designations have been properly made in favour of the appropriate taxpayer.

For the purposes of this response, the decision in Vefghi does not change the relevant positions in the Folio on capital dividends or our previous positions in Question 21 of the 2010 STEP CRA Roundtable and Question 12 of the 2023 STEP CRA Roundtable. In addition, the decision in Vefghi does not create any uncertainty regarding our positions outlined in Part 3 of the response. With respect to the Vefghi decision, leave to appeal to the Supreme Court of Canada has been sought. As of today, the Supreme Court of Canada has not yet ruled on the application for leave to appeal.

The key point to take away from this response is that the relevant day in this case is the last day of the trust’s particular taxation year. Generally, this is the day that the relevant amounts can be added to Benco’s CDA. For Part 3, the income or capital gains is added to Benco’s taxable income in the taxation year in which the trust’s particular taxation year ends.

Part 1 of the question asked when Benco would include the capital dividends received from the trust in its CDA.

First, the trust has to make the necessary designation under s. 104(20). Then, the lesser of the amounts described in s. (g)(i) and (g)(ii) of the definition of CDA will be added to Benco’s CDA at the end of the trust’s particular taxation year. This is because the condition for the designation under s. 104(20) cannot be satisfied before that time.

Part 2 of the question asked when the non-taxable portion of the capital gain distributed to Benco is added to Benco’s CDA.

We understand that the trust distributed both the taxable and non-taxable portions of the capital gains realized in its particular taxation year to Benco. We also understand that one-half of the amount distributed is designated as a taxable capital gain of Benco under s. 104(21).

The amount designated by the trust for the particular taxation year under s. 104(21) will be deemed to be a taxable capital gain from the disposition by Benco of capital property for the taxation year of Benco in which the trust’s particular taxation year ends.

With respect to the non-taxable portion of the capital gain, the lesser of the amounts determined under clauses (A) and (B) in subparagraph (a)(i.1) of the definition of CDA will be added to Benco’s CDA at the end of the trust’s particular taxation year because, again, the condition for the designation under s. 104(21) cannot be satisfied before that time.

Part 3 of the question asked when Benco needs to report taxable dividends and capital gains distributed from a trust where the GRE has a February 28 year-end and Benco has a calendar year-end.

First, turning to taxable dividends, under s. 104(19), a taxable dividend received by a trust in the trust’s particular taxation year is deemed to be a taxable dividend received by the beneficiary in the beneficiary’s taxation year in which the trust’s particular taxation year ends.

With respect to the capital gain, again, it is understood that the trust distributed both the taxable and non-taxable portions of the capital gain realized in the particular taxation year to Benco. We assume that one-half of the amount distributed is designated as the taxable capital gain of Benco under s. 104(21). Consistent with our response in Part 2, the taxable capital gain will be deemed to be a taxable capital gain from the disposition by Benco of capital property for the taxation year of Benco in which the trust’s particular taxation year ends.

Assume Benco has a December 31, 2026 year-end and the GRE has a February 28, 2026 year-end. If the GRE earned taxable dividends or capital gains in June 2025 and distributed these dividends or capital gains to Benco in December 2025, Benco would report these dividends or capital gains in its December 31, 2026 year-end because that is the taxation year of Benco in which the particular taxation year of the trust ends.

Q.5 - Canadian realty transferred by U.S. person to grantor trust

An individual is a citizen and resident of the U.S. for income tax purposes and has never been a resident of Canada for income tax purposes. The individual owns Canadian real property. For U.S. probate and tax planning purposes, the individual will settle a U.S. grantor trust by transferring the Canadian real property to the trust. The terms of the trust provide that the individual will be the trustee of the trust and the sole capital and income beneficiary of the trust during their lifetime, and that the property will be distributed to certain family members after the individual’s death (also referred to as a “U.S. revocable living trust”). Central management and control of the trust will reside in the U.S.

For U.S. income tax purposes, the U.S. grantor trust is disregarded such that the individual will not be treated as having disposed of the Canadian real property. Further, the U.S. resident individual will not be making a request under Article XIII(8) of t he Canada - U.S. Tax Treaty.

1. Can the CRA confirm that, even though this would not result in a disposition for U.S. tax purposes, that for Canadian income tax purposes the individual will be treated as having disposed of the Canadian real estate for fair market value proceeds?

2. Can the CRA also confirm that the individual would be obligated to comply with the reporting obligations under section 116?

CRA Preliminary Response

Fron: Yes.

It has been the CRA’s longstanding position that a U.S. revocable living trust should be recognized for income tax purposes at the time the legal title to property is transferred to it, and that the transfer of the property is at its full fair market value and not the value of the remainder interest only. This continues to be the CRA’s position.

As stated in our response to Question 10 at the 2016 STEP CRA Roundtable, it is the CRA’s view that a key distinguishing factor between a U.S. revocable living trust and a bare trust is that a U.S. revocable living trust generally includes beneficiaries who are contingent on the death of the settlor/grantor. As such, there is a change in beneficial ownership in respect of a transfer to a U.S. revocable living trust. For the rest of the answer, I will refer to this as the “U.S. Trust.”

In respect of the transfer, as the Canadian real property is real or immovable property situated in Canada, it meets the definition of taxable Canadian property (TCP) in s. 248(1). For Canadian income tax purposes, pursuant to s. 69(1)(b), the transfer of Canadian real property by the U.S. resident individual to the U.S. Trust would constitute a disposition of TCP for proceeds of disposition equal to the fair market value of the property. Because of s. 115(1)(b), any taxable capital gains should be reported for Canadian income tax purposes by the U.S. individual for the taxation year in which the Canadian real property is transferred to the U.S. Trust.

As far as Part 2 and the section 116 requirements go, the rules of s. 116 apply where a non-resident person disposes of certain taxable Canadian property, which includes real or immovable property situated in Canada. The non-resident person will be required to notify the CRA either before or within 10 days after the disposition on a T2062 form and is required to submit a payment or acceptable security equal to 25% of the gain on the disposition. The gain is typically calculated as proceeds of disposition minus the adjusted cost base (ACB) of the property.

However, in this case, s. 116(5.1) is important regarding the proceeds of disposition. Since the transfer of the Canadian real property by the U.S. individual to the U.S. Trust is a disposition of TCP that is made to a person with whom the U.S. resident individual is not dealing at arm’s length for no proceeds of disposition or proceeds less than fair market value, then for purposes of s. 116(1) or 116(3), the individual’s proceeds are considered to be equal to the fair market value of the property pursuant to s. 116(5.1).

Finally, the U.S. Trust may also have a potential liability under s. 116(5), but that depends on the U.S. individual’s compliance with the reporting and tax obligations discussed above.

Q.6 – Remittance of s. 214(3)(f)(i) tax

Pursuant to subparagraph 214(3)(f)(i), where an amount has been made payable, but has not been paid or credited, by a trust to a non-resident beneficiary before the end of the trust’s taxation year, the amount is deemed to have been paid by the trust on the day that is 90 days after the end of the trust’s taxation year. This date corresponds to the deadline for filing the T3 Return for the taxation year of the trust in which the amount became payable. Pursuant to subsection 215(1) Part XIII tax shall be forthwith remitted from the date on which the amount is deemed to have been paid or credited, provided the amount was not paid at an earlier time.

Assuming that the trust has a December 31 year-end, does the CRA agree that, in the scenario described, the remittance deadline would be April 15 of the following year, in accordance with the administrative guidance in Guide T4061 NR4 –Non-Resident Tax Withholding, Remitting, and Reporting?

Assuming that the CRA agrees, is there a way to ensure that the CRA will not assess penalties where the remittance is received by the Minister on or before the April 15 remittance deadline?

CRA Preliminary Response

Fron: S. 214(3)(f) is the operative provision. In fact, for the purpose of Part XIII, the relevant time in s. 214(3)(f)(i) actually is determined by three different clauses: (A), (B), and (C). However, only one of them is relevant in this case, because in this situation, the amount was not paid or credited, and the trust does not have a deemed year-end resulting from s. 128.1(4)(a)(i). That leaves us with clause (B), which is the day that is 90 days after the end of the trust’s taxation year. In this case, that date is March 31.

As a result, under s. 215(1), Part XIII tax should be withheld and remitted to the Receiver General on March 31. However, there is an administrative policy set out in Guide T4061, titled NR4 – Non-Resident Tax Withholding, Remitting, and Reporting. It provides that if the remitted tax is received by the Receiver General on or before the 15th day of the month following the month in which the amount was paid or credited to the non-resident — April 15 in this case — then the remittance will be considered to comply with s. 215(1).

In those circumstances, the CRA would not apply the penalty and interest provisions in s. 227(9) and 227(9.2).

Q.7 – S. 146(8.8) tax where ex-spouse as beneficiary

An individual is the annuitant of an unmatured RRSP. The designated beneficiary of the RRSP is a former spouse of the annuitant. Upon the death of the annuitant, the fair market value of the RRSP would generally be included in the deceased’s final income tax return. To the extent that the payment of the RRSP proceeds to the former spouse does not exceed the amount included in income of the deceased annuitant, no tax would be withheld on the payment of the RRSP proceeds to the former spouse, and the former spouse would receive the full amount on a tax-free basis. As a result, the deceased’s estate (and ultimately its beneficiaries) would bear the full tax liability associated with the RRSP, while the designated beneficiary of the RRSP would receive the proceeds of the RRSP on a tax-free basis.

Does CRA agree?

CRA Preliminary Response

Campbell: Yes, that is the way it works under the Act.

First, we will look at it from the deceased annuitant’s perspective. When the annuitant of an unmatured RRSP dies, s. 146(8.8) deems the annuitant to have received, immediately before death, a benefit out of or under the RRSP equal to the fair market value of all property held in the RRSP at the time of death. Under s. 146(8) and s. 56(1)(h), this amount, along with any other amounts received from the RRSP during the year, generally must be included in the deceased annuitant’s income for the year of death. Any resulting tax liability arising from this inclusion is typically paid using assets from the deceased’s estate.

Next, we will look at it from the perspective of the former spouse. For amounts received by a beneficiary of an RRSP — being the former spouse in this case — the portion of the amount that was deemed to have been received by the deceased annuitant under s. 146(8.8) is excluded from the former spouse’s income. So, when the former spouse receives an amount from the RRSP, only the portion that is not an amount deemed to have been received by the deceased annuitant is a benefit to the former spouse out of or under the RRSP. This means that the former spouse would receive the RRSP proceeds equal to the fair market value of the RRSP on a tax-free basis at the time of the annuitant’s death.

You should also be aware of the joint and several liability provision in s. 160.2(1). In general, s. 160.2(1) provides that where a taxpayer, other than the annuitant of the RRSP — i.e., the former spouse in this case — receives an amount, all or part of which is described in s. 160.2(1)(b), the former spouse is jointly and severally liable with the deceased annuitant for the portion of the deceased annuitant’s income tax that is attributable to the amount.

Q.8 – Trustee replacement and AoC

The use of alter ego and joint partner trusts as will substitutes is becoming more common in Canada. Such trusts often simplify personal estate planning as they cover both incapacity and death. Often the settlor will be a trustee until such time as they become incapable or die, when they will be replaced by others. After the settlor’s incapacity or death, the trustee(s) will change and may in the future continue to change from time to time in accordance with the trust terms.

If the assets of the alter ego or joint partner trust include controlling shares of a corporation, can the CRA comment on whether there will be an acquisition of control or loss restriction event for the corporation as a result of the replacement of the trustee by:

a) a person related to the settlor?

b) a person unrelated to the settlor?

c) an independent trust company?

CRA Preliminary Response

Campbell: Specific criteria must be met in order to qualify as an alter ego trust or a joint partner trust under the Act, including specific requirements regarding who is entitled to receive income or capital of the trust during their lifetime.

Where a trust controls a corporation, control of the corporation is deemed not to be acquired solely because of a change in trustee where s. 256(7)(i) applies. S. 256(7)(i) applies where a trust controls a corporation and the trustee or other legal representative having ownership or control of the trust property changes, and two additional conditions are met.

The first condition is that the change in trustees is not part of a series of transactions or events that includes a change in beneficial ownership of the trust property.

The second condition is that no amount of income or capital of the trust to be distributed at any time, at or after the change, in respect of any interest in the trust depends upon the exercise by any person or partnership, or the failure of any person or partnership to exercise, any discretionary power.

Whether the trustees of an alter ego trust or a joint partner trust have a discretionary power with respect to income or capital distributions is a question of fact that requires an analysis of the terms of the trust deed. However, the CRA is generally of the view that the trustees of a trust who hold a power to encroach on capital hold discretionary authority with respect to the capital of the trust.

This means that, depending on the circumstances and the terms of the trust deed, the second condition may not be satisfied where an alter ego trust or a joint partner trust is involved. If so, s. 256(7)(i) would not apply to deem that no acquisition of control of the corporation has occurred.

Where s. 256(7)(i) does not apply, the CRA's long-standing position, as described in Question 6 of the 2022 STEP CRA Roundtable regarding a change in trustees, would continue to apply. The CRA would generally take the position that there would be an acquisition of control in the situations described in (b) and (c) of the question.

For part (a) of the question, s. 256(7)(a) may apply to deem that there be no acquisition of control where shares are acquired by a person related to the former trustee.

Q.9 - NT 2023-02 and trust refreeze

The transactions and series of transactions designated by the Minister for the purposes of section 237.4 in NT 2023-02[2] (the “Designated Transactions”) include transactions and series of transactions that seek to avoid or defer the 21-year deemed realization rule in subsection 104(4) or that seek to avoid the rules in subsections 107(5) and (2.1) on the distribution of trust property to a non-resident beneficiary even though the property continues to be held, directly or indirectly, by a trust or by a non-resident beneficiary.

A transaction that is the same as, or substantially similar to, the Designated Transactions, or a transaction in a series of transactions that is the same as, or substantially similar to, the Designated Transactions would constitute a notifiable transaction. Two transactions, or series of transactions, are substantially similar if they are expected to obtain the same or similar types of “tax consequences” (as defined in subsection 245(1)) to one or more persons and the transactions or series of transactions are either factually similar or based on the same or similar tax strategy. This is to be interpreted broadly, in favour of disclosure.

Paragraph 81 of the CRA guidance webpage on the mandatory disclosure rules (the “CRA Guidance”)[3] states that the following transactions would not be considered substantially similar to the Designated Transactions:

“Generally, transactions which limit, in whole or in part, the future growth in the value of shares of Opco (common shares) by having the owner - Old Trust- exchange the common shares for new shares that have a fixed value (preferred shares) that is equal to the fair market value (FMV) of the common shares and where a New Trust subscribes to the growth in the value of shares of Opco (“a freeze”) or where the Old Trust sells the common shares at FMV to the New Trust would not be considered substantially similar to NT 2023-02 insofar as no rights and restrictions are expected to avoid or defer the 21 -year deemed realization rule or to avoid the rules in subsections 107(5) and (2.1) through a significant reduction in FMV.”

Can the CRA confirm that the transactions described in paragraph 81 of the CRA Guidance would not be subject to the application of the general anti -avoidance rule (“GAAR”)? If the CRA is of the view that the GAAR could be applicable in certain circumstances, could it clarify what factors it would consider in making such a determination?

CRA Preliminary Response

Campbell: The CRA would not generally seek to apply the GAAR in the circumstances described in paragraph 81 of the CRA Guidance. Paragraph 81 describes a scenario where a trust would exchange common shares it holds in a corporation for preferred shares having a redemption value and fair market value equal to the fair market value of the common shares exchanged. This paragraph also describes a scenario where a trust would dispose of common shares it holds in a corporation to a newly formed trust for proceeds of disposition equal to the fair market value of the common shares disposed of.

In addition, in order for the CRA not to apply the GAAR, the transactions must not be substantially similar to the notifiable transactions after considering all rights and restrictions applicable in the circumstances. The CRA would generally not seek to apply the GAAR because the transactions described in paragraph 81 of the CRA Guidance would not, in and by themselves, be considered to result in a misuse or abuse of ss. 104(4), 104(5.8), 107(2.1), or 107(5).

However, the CRA's conclusion could change if, after review of the rights, restrictions, and all other relevant facts applicable in a particular case, it is determined that the transactions or series of transactions result in the same or similar types of tax consequences as the notifiable transactions.

Our comments are limited to the transactions specifically described in paragraph 81 of the CRA Guidance. If it was found that the transactions form part of a broader series of transactions, our conclusions could be different. Also, the determination of whether the GAAR would apply to any particular situation would require a full consideration of all of the facts and circumstances.

Q.10 – Wait and see approach to NT 2023-02

A family trust is settled with beneficiaries that include Canadian corporations owned by one of the named individual beneficiaries. At the time of settlement, there is a possibility that this individual is planning to attend university in the U.S. and may become a non-resident of Canada in the future.

1. Because it is possible the individual beneficiary may emigrate from Canada, is Form RC312 required to be filed within 90 days of the trust’s settlement to disclose a notifiable transaction (NT2023-02)?

2. If Form RC312 was filed within 90 days of the trust’s settlement and disclosed a series of transactions where:

• a named beneficiary may emigrate from Canada within a specified timeframe, and
• if emigration occurs, trust property will be distributed under subsection 107(2) to a Canadian corporation owned by that beneficiary within a subsequent specified timeframe,

based on paragraph 69 of CRA’s Mandatory Disclosure Rules – Guidance, this initial disclosure describing the series satisfies the reporting obligation for each transaction in that series, provided no new transactions, parties, hallmarks, or material facts arise.

Can the CRA confirm that, in the above scenario, an amended Form RC312 is not required to be filed if the transactions occur as described in the initial disclosure?

CRA Preliminary Response

Fron: The written response includes some background on notifiable transactions, which you can review for further context. There is also a website that provides information on the mandatory disclosure rules and notifiable transactions. I will leave that for your reference.

The notifiable transactions outlined in NT 2023-02 include transactions involving an indirect transfer of trust property to a non-resident through the use of a Canadian resident corporate beneficiary to avoid or defer the 21-year deemed realization rule in s. 104(4) or to avoid the rules in ss. 107(5) and (2.1). Whether a filing obligation under s. 237.4(4) arises is ultimately a question of fact.

Turning to the facts provided, no person has yet entered into, or become contractually obligated to enter into, a transaction or series of transactions that are the same as or substantially similar to the designated transaction or designated series. At the time of the trust settlement, there is only a possibility that a beneficiary may later become non-resident. This possibility alone does not establish that a notifiable transaction has been entered into, nor does it create any contractual obligations to enter into one.

As a result, an RC312 filing is not required solely because the trust is settled under these circumstances. However, a filing requirement may arise if the facts later establish that a person has entered into, or become contractually obligated to enter into, a transaction or series of transactions that are the same as or substantially similar to the designated transactions in NT 2023-02. In such a case, the filing requirement is 90 days after the earlier of two specified dates.

For Part 2, for the reasons mentioned above, the reporting requirement in s. 237.4 did not arise at the time of the trust settlement. Furthermore, paragraph 69 of the CRA’s mandatory disclosure rules guidance does not alter this result, as that paragraph presupposes that a valid reporting obligation has already arisen in respect of the disclosed transaction or series.

It is important to emphasize the need to remain mindful of future events that may trigger an obligation to file an RC312.

Q.11 – S. 237(2) “reasonable effort”/ s. 239(2.3)“written consent”

Part 1

Subsection 237(1.1) requires a person (the “disclosing person”) to provide its tax identification number to another person (the “collecting person”) where the collecting person is required to make an information return under the Act or Regulations. Subsection 237(2) further requires the collecting person to make a “reasonable effort” to obtain the number. Failure to do so may result in the collecting person being subject to penalties, such as under subsection 162(5) for failing to provide information on a prescribed form, or under subsections 162(7) and potentially subsection 163(5) for failing to report beneficiary information on Schedule 15 of a T3 Return.

Can the CRA clarify what constitutes “reasonable effort” in this context? Specifically, if the disclosing person does not respond to repeated communications by email or mail to the last known contact information, would continuing to send notices to that address or email suffice? Or does CRA expect additional steps beyond repeated attempts to the last known contact?

Part 2

Subsection 239(2.3) provides that it is an offence to knowingly use, communicate (or permit another to use or communicate) a tax identification number other than for a purpose required under the Act and Regulations, or otherwise by law, without the “written consent” of the disclosing person.

Can the CRA comment on what satisfies the requirement for “written consent” under subsection 239(2.3)?

CRA Preliminary Response

Fron: Both questions – whether a filer or a collecting person has made reasonable effort, and whether they have obtained written consent — are determined on a case-by-case basis.

First, reasonable effort. In our view, a collecting person will generally have made a reasonable effort where they have taken bona fide steps to request the number, using the contact information reasonably available to them, and have maintained an adequate record of those efforts. The written response discusses some paragraphs of an Information Circular that talk about collecting the Social Insurance Number, and a webpage on the same subject. To summarize:

• Information slip preparers’ requests for their clients’ SIN and other personal data can take any form that is practical for the preparer.
• The preparer should keep a record of the date of the verbal or written request, an example of the request form, the names of the people contacted, and copies of any written requests.
• If clients do not respond to a SIN request, information slip preparers should not delay the filing of the information returns. If the SINs are not available, the Social Insurance Number area of the slip should be left blank.

The actions suggested in the question would generally be consistent with what the CRA considers to be reasonable effort, as long as the collecting person has maintained adequate records of their efforts.

For example, repeatedly sending mail to the same address might not amount to reasonable efforts if the collecting person has other means of contacting the disclosing person, such as a phone number or an email address, and those other methods were not followed up on.

As far as written consent goes, you can only disclose tax information numbers or communicate them for certain authorized purposes; see the written response for a more complete answer but, to summarize:

• Written consent must be documented in writing, whether on paper, in an electronic record, or in other forms that represent or reproduce words in visible form. On that basis, verbal or implied consent through conduct would not be considered written consent.
• Consent should be clear, specific, and affirmative, particularly because of the sensitivity of tax identification numbers.

Based on these considerations, an express opt-in consent would generally provide the clearest evidence that written consent was obtained for purposes of subsection 239(2.3). However, we will generally consider the requirement to be met where the disclosing person affirmatively checks an unchecked-by-default checkbox, which is separate from or clearly distinguished from general terms and conditions, using clear and specific language describing the particular use or communication of the Tax Identification Number in question.

Q.12 – Penalty where Sched. 15 discarded

According to information shared by the CRA with CPA Canada in August 2025, the CRA will discard Schedule 15 information in cases where filing was not required; for example, a trust that exists for fewer than three months but is still required to file a T3 Return. This approach is due to the Privacy Act, which prevents the CRA from storing Schedule 15 data when it is not required. The CRA noted that Notices of Assessment(“NOA”) will indicate that Schedule 15 information was not retained.

If a prior filed Schedule 15 was not required, if such a trust later files Schedule 15 in a year where it is required and indicates “no change” from the prior year, the CRA will assess a penalty because no previous information exists on file. This is especially problematic in light of Budget 2025 changes, where bare trust filing requirements have been deferred to taxation years ending after December 30, 2026. Practitioners may have inadvertently filed Schedule 15 for bare trusts in 2024 and/or 2025 when they were not required.

1. Can the CRA confirm whether a Schedule 15 filed with a T3 Return for a bare trust’s 2023 tax year was retained by the CRA? It is noted that the relief from the T3 Return and Schedule 15 filing requirement for that year was administrative with the Act requiring the filing of these forms.

2. Can the CRA confirm that they will assess a penalty in such a situation (where “no change” is marked in the later Schedule 15 in a year when it was required)? Could CRA instead provide administrative relief?

CRA Preliminary Response

Campbell: A Schedule 15 was retained by CRA when it was filed with the T3 Return for a bare trust’s 2023 tax return, unless there was a note on the Notice of Assessment indicating that the information had not been retained by CRA, as there is no requirement to report beneficial ownership information. As a standard practice, CRA assesses a penalty where no change is marked on a Schedule 15 and there is no existing beneficial ownership information on file. This includes situations where CRA did not retain prior year information, according to the CRA's position on the Privacy Act restrictions.

Over the past two years, CRA was made aware that the practice of discarding voluntarily submitted beneficial ownership information was a problem. This is because many filers were not aware that the information was not being retained by CRA. In 2024, CRA paused the practice of discarding beneficial ownership information in order to reexamine its position. Following additional review and analysis, the CRA determined that it can keep the voluntarily submitted information, as the information was submitted in a self-assessment system. CRA now processes and retains Schedule 15 submitted voluntarily by a trust, including some of those submitted over the past two years.

Given the change in position regarding the Privacy Act restrictions, CRA may consider providing relief related to the Schedule 15 penalty based on the trust’s specific circumstances.

To ensure CRA has the most up-to-date beneficial ownership information the next time the trust files Schedule 15, it should complete Part A of Schedule 15 by answering “No” to the question, “Is this the first time the trust is reporting beneficial ownership information?” and “Yes” to the question, “Has the beneficial ownership information of the trust changed since the last time it was reported?” Then, it should complete Parts B and C of Schedule 15.

If you received a note on your Notice of Assessment indicating that CRA did not retain your beneficial ownership information and you are required to file a Schedule 15 with your next T3 return, please submit Schedule 15 and complete Part A by selecting “Yes” to the first question, “Is this the first time the trust is reporting beneficial ownership information?” Then, complete Parts B and C, as applicable.

Q.13 – Accounting for non-resident portion trust

Where, in a particular year, one of the “resident contributors”[4] to a trust, which is deemed to be resident in Canada pursuant to paragraph 94(3)(a) (the “DRT”), ceases to be a “resident contributor” and there is no “resident beneficiary” under the DRT, the DRT can file an election pursuant to the definition of “electing trust” provided all of the other conditions therein have been met.

When so elected, paragraph 94(3)(f) will apply to the DRT, which generally speaking, deems a second inter vivos trust to be created and removes from the taxable base of the DRT the income earned by this second trust (referred to as the non-resident portion trust).

Consider the following scenario:

• There are three “resident contributors” to the DRT, all of whom are individuals: Contributor A, Contributor B and Contributor C;
• Contributor A passed away on September 1, 2025;
• Section 94 has applied to the DRT for several years. Contributors B and C continue to be “resident contributors” to the DRT throughout the DRT’s 2025 taxation year;
• Prior to the death of Contributor A, the DRT has never had a “non -resident portion”;
• The “contributions” made by each of Contributor A, Contributor B, and Contributor C continue to be held in the DRT throughout the 2025 taxation year;
• All “contributions” to the DRT were direct transfers of property to the DRT;
• None of the “contributions” is a transfer described by any of paragraphs 94(2)(a), (c), (d) or (f);
• All beneficiaries under the DRT have always been and will continue to be non -residents of Canada. Accordingly, although there are “connected contributors” to the DRT, there are no “resident beneficiaries” under the DRT; and
• The property which forms the DRT’s “non-resident portion” earned dividend income of $5,000 from January 1, 2025 to August 31, 2025, and $10,000 from September 1, 2025 to December 31, 2025.

1. Can the CRA confirm what income should be reported by the DRT in itsT3 Return for the particular year?

2. Can the CRA also confirm how expenses incurred in the particular year should be allocated between the DRT and the non-resident portion trust?

CRA Preliminary Response

Campbell: In the present scenario, Contributor A passed away in 2025, and we want to determine if the deemed resident trust [the “DRT”] can qualify to be an electing trust for the 2025 taxation year.

To be an electing trust for the 2025 taxation year, there are three conditions that the deemed resident trust must meet. First, the DRT must hold property for the first time, which is, at any time during that year, part of the DRT's non-resident portion. Second, the DRT must be deemed by paragraph 94(3)(a) to be resident in Canada throughout the year. Finally, the DRT must make a valid election to have paragraph 94(3)(f) apply to it for that year.

The facts indicate that the trust is a DRT throughout its 2025 taxation year. Next, we need to determine if 2025 is the first taxation year in which the DRT held property that is, at any time in the year, part of its non-resident portion. The non-resident portion of a trust at any time is all property held by the trust which is not, at that time, part of the resident portion of the trust.

This means that you have to first figure out the DRT's resident portion, which occurs at a particular time. In this case, the particular time will be the time immediately after the death of Contributor A on September 1, 2025. At the particular time in the scenario described, all property contributed by Contributors B and C and held by the DRT would form the resident portion. This is because it was contributed on or before the particular time to the DRT by a contributor that is, at that time, a resident contributor.

Also, at the particular time, the contributions of Contributor A would not form part of the DRT's resident portion. Contributor A is not a resident contributor after their death on September 1, 2025. Although Contributor A is a connected contributor to the DRT, after their death on that day, there is no resident beneficiary under the DRT. Therefore, on September 1, 2025, and at any time after the death of Contributor A, the DRT will have a non-resident portion.

As long as the DRT makes a valid election pursuant to the definition of an electing trust, the DRT will be an electing trust for its 2025 taxation year and for each subsequent taxation year. As a result of the application of paragraph 94(3)(f), the DRT is deemed to have transferred the property that forms its non-resident portion to a Non-Resident Portion Trust on September 1, 2025. This means the DRT will be considered to have disposed of that property on that date.

Since the DRT and the Non-Resident Portion Trust are deemed not to deal with each other at arm's length, subsection 69(1) will apply. Therefore, the DRT is deemed to have received proceeds of disposition equal to the fair market value of the property deemed to have been transferred. Any resulting capital gains will be reportable by the DRT in its T3 return for its 2025 taxation year.

Since the DRT is deemed to have transferred the property that forms its non-resident portion to a separate trust on September 1, 2025, any income, gains, or losses realized on the property after that time will be income of the Non-Resident Portion Trust. However, it is important to note that the property will continue to form part of the DRT's resident portion prior to that time.

Therefore, using the example in the question, the DRT would be required to include the dividend income of $5,000 earned between January 1 and August 31 in its T3 return for its 2025 taxation year. The $10,000 earned between September 1 and December 31 on that property would be considered to belong to the Non-Resident Portion Trust and would only be subject to Part I tax to the extent of the application of subsection 104(13).

For Part 2 of the question dealing with the allocation of expenses, in Canderel, the Supreme Court of Canada laid out the principles for determining profit. Based on these principles, the taxpayer can choose any method of determining profit that provides an accurate picture of the taxpayer's profit for the year, provided that it is not inconsistent with the provisions of the Act, rules of law, and well-accepted business principles.

Q.14 – Application of trust - (g)(iv) exclusion to s. 94(3) trust

Consider a situation in which a trust (“Trust”) was settled in the U.S. by an individual resident in Canada approximately 20 years ago. The fair market value of the trust property has increased such that there is a substantial accrued gain. Trust is not factually resident in Canada; however, Trust is considered a deemed resident trust pursuant to subsection 94(3).

Trust has two beneficiaries, who are each entitled to 50% of the income and capital of Trust. Beneficiary A is a U.S. resident for income tax purposes, whereas Beneficiary B is a resident of Canada for income tax purposes.

The deemed disposition at fair market value of the property of Trust on the 21 year anniversary of Trust, referred to in paragraph 104(4)(b), is approaching. This deemed disposition will not apply if all of the interests in Trust have vested indefeasibly pursuant to paragraph (g) of the definition of trust in subsection 108(1) and none of subparagraphs (g)(i) to (vi) apply.

For purposes of the question, assume that the interests in Trust are otherwise vested indefeasibly; however, we wish to confirm whether subparagraph (g)(iv) would apply. Subparagraph (g)(iv) applies if the total fair market value of the interests of the non-resident beneficiaries is more than 20% of the total fair market value of all of the interests in Trust. However, subparagraph (g)(iv) refers to “a trust that is at that time resident in Canada”. As Trust in this case is deemed to be resident in Canada, does subparagraph (g)(iv) apply?

CRA Preliminary Response

Fron: The written response runs through some basics on vesting indefeasibly and includes comments about the nature of vesting indefeasibly itself. However, the question is not whether the interests have vested or not. The question presupposes that we have already fit into paragraph (g), so in the interests of time I will focus on subparagraph (g)(iv).

The core issue is whether the reference to a “trust resident in Canada” in (g)(iv) encompasses a trust that is deemed to be resident pursuant to subsection 94(3). The answer is yes, it does. Subparagraphs 94(3)(a)(i) and (ii) provide that a deemed resident trust is deemed to be resident in Canada throughout the particular taxation year for purposes of applying section 2 and for computing the trust’s income under Part I.

The Department of Finance Explanatory Notes to subsection 94(3) further clarify that the effect of this deeming rule is to subject the trust to Part I tax on its worldwide income for the year, including income arising from deemed dispositions under various provisions, including subsection 104(4). Subsection 108(1) and the definition of “trust” in subsection 108(1) provide definitions for subdivision k of Division B, which pertains to the computation of income. As the definition of “trust” in subsection 108(1) impacts the application of subsection 104(4), among other provisions, it is relevant for computing the trust’s income for the year.

When we consider this in conjunction with subparagraphs 94(3)(a)(i) and (ii), we can conclude that the reference to a trust resident in Canada in subparagraph (g)(iv) includes both trusts that are factually resident and those that are deemed to be resident pursuant to subsection 94(3).

As it applies to the scenario in the question, the exception provided by paragraph (g) cannot apply, and the trust remains subject to the 21-year deemed disposition under paragraph 104(4)(b).

Q.15 - T1135 and partnership

A partnership is established and operated under foreign law and holds foreign investment property (for example, foreign rental real estate). Canadian residents hold over 10% of the interests in the partnership.

Does the filing requirement in subsection 233.3(3) apply to the partnership and the Canadian partners, provided they are reporting entities pursuant to subsection233.3(1)?

If the partnership is required to file Form T1135 – Foreign Income Verification Statement (“Form T1135”) to report its interest in the foreign property, what should be done if, in the past, the partnership did not report its interest in the foreign property, and instead relied on the fact that the Canadian partners have reported their ownership of the partnership interest on Form T1135?

CRA Preliminary Response

Fron: The written answer lays out five assumptions:

1. Canadian residents are entitled to a proportional share of income or loss from the foreign partnership equal to the interest that they hold in the partnership.
2. The Canadian residents are resident in Canada throughout the year.
3. The only asset of each Canadian resident is its respective interest in the foreign partnership.
4. The cost amount of the foreign rental real estate exceeds $100,000.
5. The foreign rental real estate held by the foreign partnership is not used or held exclusively in the course of carrying on an active business.

To answer the question, we have to walk through three different definitions in s. 233.3(1): “reporting entity,” “specified Canadian entity,” and “specified foreign property.” Two of those terms appear in subsection 233.3(3), which requires the reporting entity to file a return in the prescribed form (i.e. T1135) to disclose its specified foreign property.

A “reporting entity” for a taxation year or fiscal period means a specified Canadian entity for the year or period where, at any time of the year or period, the total cost of the entity’s specified foreign property exceeds $100,000. For purposes of the reporting entity definition, paragraph (b) of the definition of “specified Canadian entity” includes a partnership where the total of all of the non-resident partners’ share of the partnership’s income or loss is less than 90% of the income or loss of the partnership in the period.

So, in the situation we have, and because of the assumptions, that 90% condition is met because the Canadian residents hold over 10% of the interest in the income or loss of a partnership. Therefore, the partnership is a specified Canadian entity and is a reporting entity if it has specified foreign property, the cost of which exceeds $100,000.

Paragraph (b) of the definition of “specified foreign property” refers to tangible property or, for civil law, corporeal property, situated outside Canada, which includes foreign rental real estate. Therefore, assuming the foreign partnership is a reporting entity, which I think it is within the meaning of subsection 233.3(1), it would be required to report the specified foreign property, including the foreign rental real estate, on a T1135.

What about the Canadian resident partners? Are they reporting entities? Based on the stated assumption that they are not, the Canadian resident partners would not qualify as reporting entities because their only property is their interest in the partnership. An interest in a partnership that is a specified Canadian entity is excluded from being specified foreign property pursuant to the exception provided in paragraph (o) of that definition.

So, what does this mean for the partnership? The filing of T1135 forms by the Canadian partners would not exempt the partnership from a separate obligation to file a T1135. Subsection 162(7) imposes a penalty for failing to file a T1135 and, where the failure is made knowingly or under circumstances amounting to gross negligence, penalties under subsections 162(10) and 162(10.1) would apply.

How do you fix this? Under Canada’s self-assessment system, CRA encourages reporting entities and other taxpayers to come forward voluntarily to correct their tax affairs by either filing an amended T1135 to correct past filing errors or, where the eligibility criteria are met, by making an application under the Voluntary Disclosures Program.