Trust Return - minimum Tax

CraigMC · ‎March 21, 2021

Hello,

I am preparing a T3 return for a joint spousal trust. I have indicated on the info page the type of trust, however, Schedule 12 continues to calculate the Minimum Tax. My understanding is that Spousal and Joint Spousal Trusts are not subject to minimum tax.

How can I get Profile to acknowledge the type of Trust and NOT calculate minimum Tax?

Thanks,

Craig

janisbossenberry · ‎March 23, 2021

I have not worked with T3's much since I left public practice, but my recollection is that it is the gross income that is allocated to the beneficiaries, not the net income after deductions. I do recall there always being an issue when we deducted accounting fees and had dividend income. I believe you just have to ensure that you allocate enough income to offset the gross income and go with that.

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janisbossenberry · ‎March 22, 2021

There is only an exemption from the minimum tax for an alter ego or joint partner trust (both of which are inter-vivos trusts) if they are reporting their first deemed disposition during the year. The $40,000 exemption from minimum tax only applies to graduated rate trusts. Normally, you would allocate the income in an alter ego or joint partner trust out to the beneficiary rather than paying the tax within the trust.

CraigMC · ‎March 22, 2021

Hello, thank you for the response.

I think I found the issue - the Trust has investments which incurred Management Fees.
I had these fees in the software, as they were incurred to earn income.

These fees were being applied against the Capital Gains earned - which does reduce the amount of earned income in the Trust.

Unfortunately, this meant that not all of the Capital Gains was being allocated to the beneficiary - which triggered the software to calculate Minimum Tax.

The Trust only earned Capital Gains and Eligible Dividends.
When I apply the fees against the eligible dividends a similar problem occurs - the software will gross-up the eligible dividends (since they weren't all distributed) and results in a tax owing situation again.

Is there not some way to use the Management Fees for investments to reduce the net income, and also the amount that is allocated to beneficiaries (reducing their net income) without triggering minimum tax / dividend gross-up? I really thought that fees incurred to earn income should reduce the net income, and therefore the amount of income to be allocated?

janisbossenberry · ‎March 23, 2021

I have not worked with T3's much since I left public practice, but my recollection is that it is the gross income that is allocated to the beneficiaries, not the net income after deductions. I do recall there always being an issue when we deducted accounting fees and had dividend income. I believe you just have to ensure that you allocate enough income to offset the gross income and go with that.