The Government of Quebec recently decided to give Revenu Québec new tools so that it can ensure that trusts having operations or rental properties in Quebec are in compliance with the tax legislation. In Quebec's last budget tabled on November 20, 2012, the Quebec government announced amendments designed to require certain trusts that are subject to Quebec tax to file a tax or information return (hereinafter referred to as the "New Rules"). These changes will apply to taxation years starting after November 20, 2012.
The New Rules will require certain trusts subject to Quebec tax to file a tax return in three new situations and an information return in one new situation.
However, some types of trusts are excluded from the application of the New Rules, for example, estates and testamentary trusts residing in Quebec on the last day of their taxation year if the total of the cost amounts of their property for the entire taxation year of the trust is less than $1 million.
CHANGES TO THE FILING OF TAX RETURNS
Allocation of income to a beneficiary whether resident or not resident in Quebec
Where a trust subject to Quebec tax for a taxation year deducts an amount allocated to a non-resident beneficiary in the calculation of its income for the taxation year, it must now file a tax return for that taxation year. Previously, it was only required to do so where the amount was allocated to an individual resident in Quebec or a corporation with an establishment there.
Thus, where a trust resident in Quebec allocates its income to beneficiaries not resident in Quebec, it must henceforth file a tax return even if it has no tax to pay, realizes no capital gains, and does not dispose of any capital property during the taxation year.
Trust resident in Quebec owning property the total of whose cost amounts exceeds $250,000
A trust subject to Quebec tax must henceforth file a tax return if it resides in Quebec on the last day of the taxation year and it owns property, at any time during the taxation year, the total of whose cost amounts exceeds $250,000.
Trust not resident in Quebec owning business property the total of whose cost amounts exceeds $250,000
A trust subject to Quebec tax must henceforth file a tax return if it does not reside in Quebec on the last day of the taxation year and it owns property, at any time during the taxation year, which it uses to carry on a business in Quebec the total of whose cost amounts exceeds $250,000.
CHANGES TO THE FILING OF INFORMATION RETURNS
Trust resident in Canada outside Quebec holding a rental property in Quebec
From now on, a trust residing in Canada outside Quebec which owns a rental property1 located in Quebec, or which is a member of a partnership2 that owns such a property, must file an information return.
For example, a trust residing in Canada outside Quebec which receives passive property income (as opposed to business income) from a rental property located in Quebec must henceforth file an information return in Quebec.
The New Rules impose additional obligations on certain trusts that were not previously required to file a tax return or information return. The failure to comply with these New Rules may result in the imposition of penalties and interest.
Footnotes
1 The New Rules use the expression "specified immovable property" which means an immovable property located in Quebec (or a right in such immovable property) that is used mainly for the purposes of earning or producing gross revenue that constitutes rent.
2 These New Rules also apply to a trust that is a member of a partnership that itself is a member, directly or indirectly, through one or more other partnerships, of a partnership that owns a specified immovable property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
