Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

PART XII.2Tax on Designated Income of Certain Trusts

Marginal note:Definitions

• 210 (1) The following definitions apply in this Part.

  designated beneficiary

  designated beneficiary, under a particular trust at any time, means a beneficiary, under the particular trust, who is at that time

  • (a) a non-resident person;

  • (b) [Repealed, 2014, c. 39, s. 63]

  • (c) a person who is, because of subsection 149(1), exempt from tax under Part I on all or part of their taxable income and who acquired an interest as a beneficiary under the particular trust after October 1, 1987 directly or indirectly from a beneficiary under the particular trust except if

    • (i) the interest was, at all times after the later of October 1, 1987 and the day on which the interest was created, held by persons who were exempt from tax under Part I on all of their taxable income because of subsection 149(1), or

    • (ii) the person is a trust, governed by a registered retirement savings plan or a registered retirement income fund, who acquired the interest, directly or indirectly, from an individual or the spouse or common-law partner, or former spouse or common-law partner, of the individual who was, immediately after the interest was acquired, a beneficiary under the trust governed by the fund or plan;

  • (d) another trust (in this paragraph referred to as the “other trust”) that is not a graduated rate estate, a mutual fund trust or a trust that is exempt because of subsection 149(1) from tax under Part I on all or part of its taxable income, if any beneficiary under the other trust is at that time

    • (i) a non-resident person,

    • (ii) [Repealed, 2014, c. 39, s. 63]

    • (iii) a trust that is not

      • (A) a graduated rate estate,

      • (B) a mutual fund trust,

      • (C) a trust that is exempt because of subsection 149(1) from tax under Part I on all or part of its taxable income, or

      • (D) a trust

        • (I) whose interest, at that time, in the other trust was held, at all times after the day on which the interest was created, either by it or by persons who were exempt because of subsection 149(1) from tax under Part I on all of their taxable income, and

        • (II) none of the beneficiaries under which is, at that time, a designated beneficiary under it, or

    • (iv) a person or partnership that

      • (A) is a designated beneficiary under the other trust because of paragraph (c) or (e), or

      • (B) would be a designated beneficiary under the particular trust because of paragraph (c) or (e) if, instead of being a beneficiary under the other trust, the person or partnership were at that time a beneficiary, under the particular trust, whose interest as a beneficiary under the particular trust were

        • (I) identical to its interest (referred to in this clause as the “particular interest”) as a beneficiary under the other trust,

        • (II) acquired from each person or partnership from whom it acquired the particular interest, and

        • (III) held, at all times after the later of October 1, 1987 and the day on which the particular interest was created, by the same persons or partnerships that held the particular interest at those times; or

  • (e) a particular partnership any of the members of which is at that time

    • (i) another partnership, except if

      • (A) each such other partnership is a Canadian partnership,

      • (B) the interest of each such other partnership in the particular partnership is held, at all times after the day on which the interest was created, by the other partnership or by persons who were exempt because of subsection 149(1) from tax under Part I on all of their taxable income,

      • (C) the interest of each member, of each such other partnership, that is a person exempt because of subsection 149(1) from tax under Part I on all or part of its taxable income was held, at all times after the day on which the interest was created, by that member or by persons who were exempt because of subsection 149(1) from tax under Part I on all of their taxable income, and

      • (D) the interest of the particular partnership in the particular trust was held, at all times after the day on which the interest was created, by the particular partnership or by persons who were exempt because of subsection 149(1) from tax under Part I on all of their taxable income,

    • (ii) a non-resident person,

    • (iii) [Repealed, 2014, c. 39, s. 63]

    • (iv) another trust that is, under paragraph (d), a designated beneficiary of the particular trust or that would, under paragraph (d), be a designated beneficiary of the particular trust if the other trust were at that time a beneficiary under the particular trust whose interest as a beneficiary under the particular trust were

      • (A) acquired from each person or partnership from whom the particular partnership acquired its interest as a beneficiary under the particular trust, and

      • (B) held, at all times after the later of October 1, 1987 and the day on which the particular partnership’s interest as a beneficiary under the particular trust was created, by the same persons or partnerships that held that interest of the particular partnership at those times, or

    • (v) a person exempt because of subsection 149(1) from tax under Part I on all or part of its taxable income except if the interest of the particular partnership in the particular trust was held, at all times after the day on which the interest was created, by the particular partnership or by persons who were exempt because of subsection 149(1) from tax under Part I on all of their taxable income. (bénéficiaire étranger ou assimilé)

  designated income

  designated income, of a trust for a taxation year, means the amount that would be the income of the trust for the year determined under section 3 if

  • (a) this Act were read without reference to subsections 104(6), (12) and (30);

  • (b) the trust had no income other than taxable capital gains from dispositions described in paragraph (c) and incomes from

    • (i) real or immovable properties in Canada (other than Canadian resource properties),

    • (ii) timber resource properties,

    • (iii) Canadian resource properties (other than properties acquired by the trust before 1972), and

    • (iv) businesses carried on in Canada;

  • (c) the only taxable capital gains and allowable capital losses referred to in paragraph 3(b) were from

    • (i) dispositions of taxable Canadian property, and

    • (ii) dispositions of particular property (other than property described in any of subparagraphs 128.1(4)(b)(i) to (iii)), or property for which the particular property is substituted, that was transferred at any particular time to a particular trust in circumstances in which subsection 73(1) or 107.4(3) applied, if

      • (A) it is reasonable to conclude that the property was so transferred in anticipation that a person beneficially interested at the particular time in the particular trust would subsequently cease to reside in Canada, and a person beneficially interested at the particular time in the particular trust did subsequently cease to reside in Canada, or

      • (B) when the property was so transferred, the terms of the particular trust satisfied the conditions in subparagraph 73(1.01)(c)(i) or (iii), and it is reasonable to conclude that the transfer was made in connection with the cessation of residence, on or before the transfer, of a person who was, at the time of the transfer, beneficially interested in the particular trust and a spouse or common-law partner, as the case may be, of the transferor of the property to the particular trust; and

  • (d) the only losses referred to in paragraph 3(d) were losses from sources described in any of subparagraphs (b)(i) to (iv). (revenu de distribution)

• Marginal note:Tax not payable

  (2) No tax is payable under this Part for a taxation year by a trust that was throughout the year

  • (a) a graduated rate estate;

  • (b) a mutual fund trust;

  • (c) exempt from tax under Part I because of subsection 149(1);

  • (d) a trust to which paragraph (a), (a.1) or (c) of the definition trust in subsection 108(1) applies; or

  • (e) non-resident.

210.1 [Repealed, 2013, c. 34, s. 341]

Marginal note:Tax on income of trust

• 210.2 (1) Subject to section 210.3, if a trust deducts an amount under paragraph 104(6)(b) in computing its income under Part I for a taxation year, the trust shall pay a tax under this Part in respect of the year equal to 40% of the least of

  • (a) the designated income of the trust for the year,

  • (b) the amount that, but for subsections 104(6) and 104(30), would be the income of the trust for the year, and

  • (c) 100/60 of the amount deducted.

• (1.1) [Repealed, 2013, c. 34, s. 342]

• Marginal note:Amateur athlete trusts

  (2) Notwithstanding subsection 210(2), a trust shall pay a tax under this Part in respect of a particular taxation year of the trust equal to 2/3 of the amount that is required by subsection 143.1(2) to be included in computing the income under Part I for a taxation year of a beneficiary under the trust, if

  • (a) the beneficiary is at any time in the particular taxation year a designated beneficiary under the trust; and

  • (b) the particular taxation year ends in that taxation year of the beneficiary.

• Marginal note:Tax deemed paid by beneficiary

  (3) Where an amount (in this subsection and subsection 210.3(2) referred to as the “income amount”) in respect of the income of a trust for a taxation year is, by reason of subsection 104(13) or 105(2), included in computing

  • (a) the income under Part I of a person who was not at any time in the year a designated beneficiary under the trust, or

  • (b) the income of a non-resident person (other than a person who, at any time in the year, would be a designated beneficiary under the trust if section 210 were read without reference to paragraph (a) of the definition designated beneficiary in that section) that is subject to tax under Part I by reason of subsection 2(3) and is not exempt from tax under Part I by reason of a provision contained in a tax treaty,

  an amount determined by the formula

  A × B/C

  where

  A

  is the tax paid under this Part by the trust for the year,

  B

  is the income amount in respect of the person, and

  C

  is the total of all amounts each of which is an amount that is or would be, if all beneficiaries under the trust were persons resident in Canada to whom Part I was applicable, included in computing the income under Part I of a beneficiary under the trust by reason of subsection 104(13) or 105(2) in respect of the year,

  shall, if designated by the trust in respect of the person in its return for the year under this Part, be deemed to be an amount paid on account of the person’s tax payable under Part I for the person’s taxation year in which the taxation year of the trust ends, on the day that is 90 days after the end of the taxation year of the trust.

• Marginal note:Designations in respect of partnerships

  (4) Where a taxpayer is a member of a partnership in respect of which an amount is designated by a trust for a taxation year of the trust (in this subsection referred to as the “particular year”) under subsection 210.2(3),

  • (a) no amount shall be deemed to be paid on account of the partnership’s tax payable under Part I by reason of subsection 210.2(3) except in the application of that subsection for the purposes of subsection 104(31), and

  • (b) an amount determined by the formula

    A × B/C

    where

    A

    is the amount so designated,

    B

    is the amount that may reasonably be regarded as the share of the taxpayer in the designated income of the trust received by the partnership in the fiscal period of the partnership in which the particular year ends (that fiscal period being referred to in this subsection as the “partnership’s period”), and

    C

    is the designated income received by the partnership from the trust in the partnership’s period,

  shall be deemed to be an amount paid on account of the taxpayer’s tax payable under Part I for the person’s taxation year in which the partnership’s period ends, on the last day of that year.

• Marginal note:Returns

  (5) A trust shall, within 90 days after the end of each taxation year,

  • (a) file with the Minister a return for the year under this Part in prescribed form and containing prescribed information, without notice or demand therefor;

  • (b) estimate in the return the amount of tax, if any, payable by it under this Part for the year; and

  • (c) pay to the Receiver General the tax, if any, payable by it under this Part for the year.

• Marginal note:Liability of trustee

  (6) A trustee of a trust is personally liable to pay to the Receiver General on behalf of the trust the full amount of any tax payable by the trust under this Part to the extent that the amount is not paid to the Receiver General within the time specified in subsection 210.2(5), and the trustee is entitled to recover from the trust any such amount paid by the trustee.

• Marginal note:Provisions applicable to Part

  (7) Subsections 150(2) and 150(3), sections 152 and 158, subsections 161(1) and 161(11), sections 162 to 167 and Division J of Part I are applicable to this Part with such modifications as the circumstances require.

Marginal note:Where no designated beneficiaries

• 210.3 (1) No tax is payable under this Part by a trust for a taxation year in respect of which the trustee has certified in the trust’s return under this Part for the year that no beneficiary under the trust was a designated beneficiary in the year.

• Marginal note:Where beneficiary deemed not designated

  (2) Where a trust would, if the trust paid tax under this Part for a taxation year, be entitled to designate an amount under subsection 210.2(3) in respect of a non-resident beneficiary and the income amount in respect of the beneficiary is included in computing the income of the beneficiary which is subject to tax under Part I by reason of subsection 2(3) and is not exempt from tax under Part I by reason of a provision contained in a tax convention or agreement with another country that has the force of law in Canada, for the purposes of subsection 210.3(1), the beneficiary shall be deemed not to be a designated beneficiary of the trust at any time in the year.

PART XII.3Tax on Investment Income of Life Insurers

Marginal note:Definitions

• 211 (1) For the purposes of this Part,

  existing guaranteed life insurance policy

  existing guaranteed life insurance policy, at any time, means a non-participating life insurance policy in Canada in respect of which

  • (a) the amount of every premium that became payable before that time and after December 31, 1989,

  • (b) the number of premium payments under the policy, and

  • (c) the amount of each benefit under the policy at that time

  were fixed and determined on or before December 31, 1989; (police d’assurance-vie garantie existante)

  life insurance policy

  life insurance policy includes a benefit under

  • (a) a group life insurance policy, and

  • (b) a group annuity contract

  but does not include

  • (c) that part of a policy in respect of which the policyholder is deemed by paragraph 138.1(1)(e) to have an interest in a related segregated fund trust, or

  • (d) a reinsurance arrangement; (police d’assurance-vie)

  life insurance policy in Canada

  life insurance policy in Canada means a life insurance policy issued or effected by an insurer on the life of a person resident in Canada at the time the policy was issued or effected; (police d’assurance-vie au Canada)

  net interest rate

  net interest rate, in respect of a liability, benefit, risk or guarantee under a life insurance policy of an insurer for a taxation year, is the positive amount, if any, determined by the formula

  (A - B) × C

  where

  A

  is the simple arithmetic average determined as of the first day of the year of the average yield (expressed as a percentage per year rounded to 2 decimal points) in each of the 60 immediately preceding months prevailing on all domestic Canadian-dollar Government of Canada bonds outstanding on the last Wednesday of that month that have a remaining term to maturity of more than 10 years,

  B

  is

  • (a) in the case of a guaranteed benefit provided under the terms and conditions of the policy as they existed on March 2, 1988, other than a policy where, at any time after March 2, 1988, its terms and conditions relating to premiums and benefits were changed (otherwise than to give effect to the terms and conditions that were determined before March 3, 1988), the greater of

    • (i) the rate of interest (expressed as a percentage per year) used by the insurer in determining the amount of the guaranteed benefit, and

    • (ii) 4%, and

  • (b) in any other case, nil, and

  C

  is

  • (a) in the case of a guaranteed benefit to which paragraph (a) of the description of B applies, 65%, and

  • (b) in any other case, 55%; (taux d’intérêt net)

  non-participating life insurance policy

  non-participating life insurance policy means a life insurance policy that is not a participating life insurance policy; (police d’assurance-vie sans participation)

  participating life insurance policy

  participating life insurance policy has the meaning assigned by subsection 138(12); (police d’assurance-vie avec participation)

  policy loan

  policy loan has the meaning assigned by subsection 138(12); (avance sur police)

  registered life insurance policy

  registered life insurance policy means a life insurance policy issued or effected as or under a pooled registered pension plan, a registered retirement savings plan, a deferred profit sharing plan or a registered pension plan; (police d’assurance-vie agréée)

  reinsurance arrangement

  reinsurance arrangement does not include an arrangement under which an insurer has assumed the obligations of the issuer of a life insurance policy to the policyholder; (mécanisme de réassurance)

  segregated fund

  segregated fund has the meaning given that expression in subsection 138.1(1); (fonds réservé)

  specified transaction or event

  specified transaction or event, in respect of a life insurance policy, means

  • (a) a change in underwriting class,

  • (b) a change in premium because of a change in frequency of premium payments within a year that does not alter the present value, at the beginning of the year, of the total premiums to be paid under the policy in the year,

  • (c) an addition under the terms of the policy as they existed on

    • (i) in the case of an existing guaranteed life insurance policy, December 31, 1989,

    • (ii) in any other case, March 2, 1988,

    of accidental death, dismemberment, disability or guaranteed purchase option benefits,

  • (d) the deletion of a rider,

  • (e) redating lapsed policies within the reinstatement period referred to in paragraph (g) of the definition disposition in subsection 148(9) or redating for policy loan indebtedness,

  • (f) a change in premium because of a correction of erroneous information,

  • (g) the payment of a premium after its due date, or no more than 30 days before its due date, as established on or before

    • (i) in the case of an existing guaranteed life insurance policy, December 31, 1989, and

    • (ii) in any other case, March 2, 1988, and

  • (h) the payment of an amount described in paragraph (a) of the definition premium in subsection 148(9); (opération ou événement déterminé)

  taxable life insurance policy

  taxable life insurance policy of an insurer at any time means a life insurance policy in Canada issued by the insurer (or in respect of which the insurer has assumed the obligations of the issuer of the policy to the policyholder), other than a policy that is at that time

  • (a) an existing guaranteed life insurance policy,

  • (b) an annuity contract (including a settlement annuity),

  • (c) a registered life insurance policy,

  • (d) a registered pension plan, or

  • (e) a retirement compensation arrangement. (police d’assurance-vie imposable)

• Marginal note:Riders and changes in terms

  (2) For the purposes of this Part,

  • (a) any rider added at any time after March 2, 1988 to a life insurance policy shall be deemed to be a separate life insurance policy issued and effected at that time; and

  • (b) a change in the terms or conditions of a life insurance policy resulting from a specified transaction or event shall be deemed not to have occurred and not to be a change.