Annuities and Fixed-Amount Allocations
If a beneficiary receives a fixed allocation of income e.g. an annuity or a discretionary amount, enter this amount on BENEF in the Annuity/Fixed Income to be Allocated field. The system will allocate a pro rata share of each type of income and/or capital gain to add up to the amount of the annuity. The annuity can be specified to include income and/or capital gains by marking the appropriate field(s). If no specification is made, the allocation of the fixed amount will be prorated only over the income pools (i.e. no capital gains).
The program will allocate income and/or capital gains up to the specified amount for each beneficiary as long as there is sufficient income/capital gains available in the trust. The total actual amount allocated will be shown. A diagnostic is provided if there was insufficient income remaining in the trust.
Fractional Allocations
Where the beneficiary receives a percentage of the trust income, enter the appropriate fraction in the Fraction for Income field. The fraction entered will be applied equally to all types of income. Where the beneficiary receives a percentage of the capital gains, enter the appropriate fraction in the Fraction for Capital Gains field. The fraction entered will apply equally to all types of capital gains. Fractions for any type of income or capital gain can be overridden for each beneficiary.
Global fractions for income and capital gains allocations can be entered on the Summary of Beneficiary Information (BENS) for use by all beneficiaries for which a fraction has not been entered, providing a simple way to allocate income equally to all beneficiaries.
The fractions are applied to the residual income after the "true annuities" have been allocated. "True annuities" refers to fixed allocations for which the "Fixed allocation reduces amount available for fractional allocations" box has been checked.
Combinations
If a beneficiary is entitled to receive both an annuity and a fraction of income or capital gains, you must create two entries for the beneficiary - one for each type of allocation.
Preferred Beneficiaries
Preferred beneficiary elections are made by creating an entry on the BENEF form separate from any other allocations for that beneficiary. This entry should be identified as a preferred beneficiary by answering YES to the question "Preferred Beneficiary ?" If an election is being made in the current year, allocate the income using allocation method "c." Note that one of the criteria in the definition of "preferred beneficiary" is that the beneficiary be entitled to the disability credit.
The accumulating income of the trust can be divided among the preferred beneficiaries in essentially any manner that you desire. The default behaviour is to divide the accumulating income equally among all preferred beneficiaries making the election. This behaviour can altered either by overriding the fractions for each category of income or by entering a fixed allocation.
Allocating Different Types of Income
The program assumes the "Even Handed Rule", giving each beneficiary the same fraction of each type of income. The amount of each type of income can be overridden.
Allocating Deemed Income and Capital Gains
Normally, the program does not allocate income or capital gains from deemed dispositions (reported on form T1055). One of the options at the top of the T1055 must be selected before deemed income or capital gains will be allocated on the BENEF form.
Non-Residents Withholding Tax Rate
The non-resident withholding tax rate defaults to 15% for the United States and the United Kingdom, and to 25% for all other countries. You must override this field if a special rate applies under a treaty with another country.
Amounts Not Available For Allocation
If the trust document does not allow certain amounts or types of income to be allocated to beneficiaries, these amounts can be made unavailable for allocation by entering them in the Retained In Trust column of table at the bottom of the S9SUP form.
Designated trust (Québec)
The term "designated trust" means any trust resident in Canada, outside Québec, except the following trusts:
- unit trusts; or
- trusts that cannot make the designation provided for under subsection 104(13.1) or 104(13.2) of the Income Tax Act (such as employee trusts, trusts governed by an employee benefit plan, segregated fund trusts, religious or non-profit organizations, and trusts that were not resident in Canada throughout the year).
As a rule, the residence of a trust is the residence of the trustee. However, if the trustee resides outside Québec but it can be shown that a substantial part of the control and administration of the assets of the trust is in the hands of persons that reside in Québec, the Ministère may consider that the trust resides in Québec.
Designated beneficiary (Québec)
For Québec Income Tax purposes, a designated beneficiary is an individual (including a trust) or a corporation that is a beneficiary of the designated trust, or a member of a partnership that is itself a beneficiary of the trust, provided the individual, corporation or member has, as applicable,
- a share of $5,000 or more of the income interests of the trust; or
- a share of 10% or more of the capital interests or the income interests of the trust.
In determining the share, you must take into account the share of the capital interests (or the income interests) in the designated trust of persons with whom the beneficiary is not dealing at arm’s length.
Also, a "designated beneficiary" is a beneficiary that is
- an individual (including a trust) resident in Québec during the year covered; or
- an individual not resident in Québec or a corporation, if the individual or corporation has an establishment in Québec at some time during the year covered.
S. 104(13.1) and (13.2) Elections To Tax Income In The Trust - The ELBEN Form
The ELBEN form is used to make elections under s. 104(13.1) and/or (13.2) to tax income or taxable capital gains in the trust even though the amounts were paid or payable to beneficiaries. This election might be used to take advantage of losses carried forward or unused credits in the trust.
On the ELBEN form, specify the portion of the allocated income that should be taxed in the trust. The ELBEN form will then apportion the total income reduction to the beneficiaries according to the rules laid out in ss. 104(13.1) and/or (13.2), and then compute the remaining income (for each income category) to transfer to the T3 slips (T3S). A beneficiary by beneficiary listing of the elections is printed for submission to Canada Revenue Agency.
Note that Canada Revenue Agency requires the beneficiary by beneficiary listing of the elected amounts. Include all amounts that are paid or payable on the BENEF form and then make the 104(13.1) and/or (13.2) elections on the ELBEN form to tax all or a portion of those amounts in the trust. If the ELBEN form is not used in favour of simply allocating net amounts on the BENEF form, the T3 slip amounts will still be correct; however, the return will be missing the beneficiary by beneficiary listing that Canada Revenue Agency requires. The total elected amount will be transferred to line 47 calculation on the T3 return.
Updating the T3S and NR4
The amounts calculated on the BENEF or ELBEN form are posted to the T3S for all beneficiaries and then from the T3S to the NR4 for non-resident beneficiaries. If necessary, the amounts on the T3S and NR4 can also be overridden.