Principal changes 2005

Cost base adjustment of capital interest and new box on the RL-16 slip (box M)

As of 2005, a trust that is not a personal trust must indicate, in Schedule C of the Trust Income Tax Return (TP-646-V), the adjustment in the cost base of its beneficiaries' capital interests, and enter in box M of the RL-16 slip the amount of each beneficiary's share of the adjustment.

Adjustment of investment expenses

Effective March 30, 2004, the amount of investment expenses cannot exceed the amount of investment income, with the exception of investment expenses relating to the rental of property. The non-deductible portion, called the "adjustment of investment expenses," can be carried back three years or carried forward to subsequent years.

The following rules apply to trusts:

• Only personal trusts are required to make an adjustment of investment expenses.
• For the purposes of the adjustment, the deductions for exploration and development expenses are considered to be other investment expenses, but only if they pertain to flow-through shares:
  • either acquired after March 11, 2005
  • or issued further to an application for a receipt for the preliminary prospectus or an application for an exemption from filing a prospectus (made after March 11, 2005)
• The following is considered to be investment income:
  • the taxable capital gains allocated to a particular personal trust by another trust, where the gains do not give entitlement to the deduction (that is, 50% of the amount by which the amount in box A exceeds the amount in box H of the RL-16 slip issued to the personal trust)
  • in the case of a spousal trust for the year of the spouse's death, the portion of the taxable capital gains that gives entitlement to a deduction and that exceeds the $250,000 limit (if the spouse reached this limit in that year), or any capital gains giving entitlement to a deduction (if the spouse exceeded this limit)

In addition, since personal trusts can carry over the non-deductible portion of investment expenses, you can now track the carry-over operations in a new section of Schedule B of the Trust Income Tax Return (TP-646-V).

Affiliated persons

Effective March 23, 2004, the rules pertaining to the non-deductibility of a loss sustained on the disposition of property involving an affiliated person include specific measures regarding trusts.

For further information, refer to the Guide to Filing the Trust Income Tax Return (TP-646.G-V).