Tax news: Introducing the T3 Trust Guide for 2011

If you are filing a return for either a testamentary trust or an inter vivos trust, you will want to review Canada Revenue Agency's T3 Trust Guide, 2011. There are a number of changes including the treatment of eligible dividends and Employee Life and Health Trusts (ELHT).

An ELHT is a single-purpose inter vivos trust established by one or more employers to deliver benefits to employees and related persons. Employers' contributions to the trust are tax-deductible ó as long as the benefits delivered meet the conditions set out in subsection 144.1(4) of the Income Tax Act.

Employees can also contribute to an ELHT but their contributions are not deductible. Their contributions may qualify, however, for the medical expense tax credit, to the extent that they are contributing to a private health services plan.

The ELHT itself can deduct amounts paid to employees or former employees for designated benefits and can generally carry non-capital losses back or forward three years.

The CRA notes that any amount received from an ELHT other than a designated benefit must be included in income. Payments of benefits to non-resident employees or former employees will generally not be subject to taxes under Part XIII.

The T3 Trust Guide also notes that:

ï If the trust for which you are reporting uses the International Financial Reporting Standards, you will need to note that on the T3.

ï Effective Jan.1,2011, the gross-up rate for eligible dividends and the rate that applies to the taxable amount of eligible dividends, for purposes of the dividend tax credit, have changed.