The following instructions are taken from the form.
General Information
For the purpose of this form, the term eligible trust is a trust, for each tax year ending after 2016, which is described in the following three categories:
- The trust is an alter ego trust; spousal or common-law partner trust; joint spousal or common-law partner trust; or a certain trust for the exclusive benefit of the settlor during the settlor’s lifetime. These are collectively referred to as life-time benefit trusts. For each one, the beneficiary of the trust for each tax year for which the trust is designating the property as its principal residence, is the settlor, spouse or common-law partner, or former spouse or commonlaw partner, of the settlor (as the case may be)
- The trust is a qualified disability trust, as long as the electing beneficiary of the trust for the year is: (a) a resident in Canada during the year; (b) the specified beneficiary of the trust during the year; and (c) a spouse, common-law partner, former spouse or common-law partner or child of the settlor
- A trust, the specified beneficiary of which for the year is an individual: (a) who has not attained 18 years of age before the end of the year; (b) who is resident in Canada during the year; and (c) whose mother or father is a settlor of the trust and either of the following conditions is met: (i) neither the mother or father of the individual is alive at the beginning of the year or (ii) the trust arose before the beginning of the year as a result of the death of either the mother or father of the individual.
A trust must be an eligible trust in the year in order to designate any property as a principal residence for that particular year. To qualify as the principal residence for a tax year, the trust's property must meet all of the following criteria:
- a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation that the trust acquired only for the right to inhabit a housing unit owned by the corporation
- owned by the trust at any time in the tax year, jointly with another person or otherwise (this includes sole ownership, joint tenancy, tenancy-in-common, and co-ownership (for example, in Quebec))
- a housing unit ordinarily inhabited by a specified beneficiary of the trust or by the current or former spouse, the current or former common-law partner, or a child of a specified beneficiary at any time in the calendar year that ended in the tax year of the trust
- designated as the trust's only principal residence for that tax year
A person referred to in (c) above cannot designate another housing unit or leasehold interest. An exception to this is the spouse or common-law partner of the specified beneficiary who, throughout the year, lived separate and apart from the beneficiary according to a judicial separation or written separation agreement. Another exception is a child of the specified beneficiary who was married, in a common-law relationship, or aged 18 or older.
For a specified beneficiary who, throughout the year, was under 18, not married, and not in a common-law relationship, no other property can be designated by their mother, father, or any of their brothers or sisters unless they were 18 or older, married, or in a common-law relationship in the year.
If the trust has made, or is making, an election under subsection 45(2) or 45(3) of the Income Tax Act, it can designate the property to be its principal residence for up to four more years, even though the housing unit was not ordinarily inhabited during those years by one of the persons mentioned above. If the trust meets certain conditions, the four-year limitation can be extended indefinitely for those tax years in which the ordinarily inhabited rule was not met because the place of employment of either a specified beneficiary or the spouse or common-law partner of a specified beneficiary was relocated. For more information on these elections, see Guide T4037, Capital Gains.
If the trust distributed the property to a beneficiary on a subsection 107(2) rollover basis, in certain circumstances, subsection 107(2.01) may allow the trust to elect to have disposed of the property at fair market value immediately before this distribution. This would allow the trust to use the principal residence exemption.
If a trust has distributed a property to a beneficiary on a subsection 107(2) rollover basis to satisfy all or any part of the beneficiary's capital interest in the trust, and if the beneficiary disposes of the property after May 9, 1985, to claim the principal residence exemption, the beneficiary is considered to have owned the property since the trust last acquired it. This deemed-ownership provision does not apply if a post-1971 spousal or common-law partner, joint spousal or common-law partner, or alter ego trust distributed the property to a person other than the relevant spouse, common-law partner, or settlor when the spouse, common-law partner, or settlor was alive or on the day that person died, if that day was after December 20, 1991.
For more information, see Income Tax Folio S1-F3-C2, Principal Residence, and the chapter called "Principal Residence" in Guide T4037.
Definitions
Common-law partner — This applies to a person who is not your spouse (see below), with whom you are living and have a conjugal relationship, and to whom at least one of the following situations applies. They:
- have been living with you in a conjugal relationship, and the current relationship has lasted at least 12 continuous months
- are the parent of your child by birth or adoption
- have custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support
In addition, an individual immediately becomes your common-law partner if you previously lived together in a conjugal relationship for at least 12 continuous months and you have resumed living together in such a relationship. Under proposed changes, this condition will no longer exist. The effect of this proposed change is that a person (other than a person described in b) or c) above) will be your common-law partner only after your current relationship with that person has lasted at least 12 continuous months. This change applies to 2001 and later years.
Reference to "12 continuous months" in this definition includes any period that you were separated for less than 90 days because of a breakdown in the relationship.
Specified beneficiary — A specified beneficiary of a trust for the year is a beneficiary who had a beneficial interest in the trust for the calendar year that ended in the tax year of the trust, and who ordinarily inhabited the housing unit or had a current or former spouse, a current or former common-law partner, or a child who ordinarily inhabited the housing unit in the calendar year that ended in the tax year of the trust. If the housing unit was not ordinarily inhabited by a particular beneficiary of a personal trust or by that beneficiary's current or former spouse, current or former common-law partner, or child, that beneficiary can nevertheless still fall within the definition of a "specified beneficiary" of the trust for a particular tax year of the trust. This would be the case if, in the calendar year ending in the trust's tax year, that beneficiary had a beneficial interest in the trust and the trust was entitled to designate the property as its principal residence for the year by reason of a subsection 45(2) or 45(3) election.
Spouse — This term applies only to a person who is legally married.