Testamentary Trusts Treated As One by CRA – Sas Ansari

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Testamentary Trusts Treated As One by CRA 

Evoy v The Queen, 2016 TCC 263

At issue was whether Income Tax Act subsection 104(2) applied to treat multiple trusts as one, specifically whether the second condition (the commonality of ultimate beneficiary or class of beneficiaries is met).

The court held that the assessment must occur over the lifetime of the trust, not on a year by year basis, and the group or class must be the same (and not merely that the beneficiaries in each group or class are all members of the same group or class).


The trusts were created by will in 2007. The Minister reassessed the the Appellant, treating all three trusts as one trust, and including all income in the income of the Appellant trust.

The three trusts were for the testator’s three children.  The terms of the trusts provided cross entitlements to the three children and their children (the details are found in the judgment).


The Appellant argued that the condition in paragraph 104(2)(b) is satisfied if “during the entire existence of the three trusts, the income accrues or will ultimately accrue to the same beneficiary, or group or class of beneficiaries” (para 6).  The Appellant also argued that although the income of all three trusts accrues to the same beneficiary during her lifetime, thereafter the income goes to different beneficiaries and as such the condition is not satisfied (para 6).

The Minister took the position that the treatment must occur on an annual basis to determine whether the condition is met in the particular tax year (para 7).


The Minister may treat multiple trusts as one trust for purposes of the ITA, pursuant to subsection 104(2), where the conditions are met:

 i)          substantially all of the property of each trust has been received from the same person; and

 ii)          each of the trusts is conditioned so that the income accrues or will ultimately accrue to the same beneficiary or group or class of beneficiaries.

What is the meaning to be given to “conditioned so that the income therefore accrues or will ultimately accrue to the same beneficiary or group or class of beneficiaries”?  The Court referred to the principles of statutory interpretation in Canada Trustco Mortgage Co. Ltd. v. Canada, 2005 SCC 54 at paragraph 10, and noted that the ITA is “an instrument dominated by explicit provisions dictating specific consequences, inviting a largely textual interpretation”(paras 11-12).

The Court then stated that the text of the provision appears to contemplate the consideration of the right to the income of the trust over the entire lifetime of the trust and not on the basis of each taxation year (para 14).  This conclusion was based on the words “or will ultimately accrue”, as the court did not see these words as being reconcilable with a tax-year approach (para 14).   The court also noted that an annual approach would require the court to read in words to that effect (para 15), and there is no power or discretion for the Minister to re-designate a consolidated trust as multiple trusts (para 16).

The deeming provision is found in a section that deems a trust to be an individual for the purpose of the ITA, and this does not consider an annual reconsideration (para 17). This paragraph is an exception to the general rule that each trust is a separate individual for ITA purposes  (para 18).

The purpose of 104(2) is to prevent income splitting to take advantage of the lower marginal tax rates of each testamentary trust when the income beneficiary is the same, but this has to be considered over the entire life of a trust (para 21).

The court also stated that being the part of the same family is not sufficient to meet the same group or class condition in 104(2)(b), and in this case the “none of the trusts have the same children and grandchildren of the settlor as residual income beneficiaries. In other words, the entire class of children and grandchildren are not income beneficiaries of each trust. Rather, a different part of the class is named in each of the trusts. There are no “cross-over” beneficiaries amongst the children and grandchildren of the testator in any of the three trusts. Therefore the trusts are not conditioned so that the income will ultimately accrue to the same group or class of beneficiaries.” (para 24).   The words of the provision do not support the argument that ” that it is not necessary that each trust have the same beneficiaries in each trust and that it is sufficient that the beneficiaries of each trust are members of the same group or class, I do not believe that this can be supported on the language of paragraph 104(2)(b) which refers to “the same group or class” and not to “members of the same group or class.” (para 25).

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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