Gerald Kowarsky Trust, 2026 TCC 174: a wound-up trust's last taxation year still ends on December 31

2026 TCC 174 · Tax Court of Canada

Author: Sas Tullo

A family trust wound up on December 30, 2023, one day before the new trust reporting rules (Schedule 15) began to apply to taxation years ending after that date. It filed the information about eighteen months late, was assessed a late-filing penalty, and argued that its last taxation year ended the day it ceased to exist, so the new rules never applied. The Tax Court disagreed: for a trust of this kind the taxation year is the calendar year, and winding up early does not shorten it. The case matters to anyone who dissolves a trust part-way through a year and assumes that the compliance clock stops that day.

Facts

The appellant, an alter ego trust created in 2005, wound up its affairs on December 30, 2023 (para 3). The statute implementing the 2022 fall economic statement introduced section 204.2 of the Income Tax Regulations, which requires most trusts filing a return under subsection 150(1) of the Income Tax Act to report their trustees, beneficiaries and settlors, and made it apply to “taxation years that end after December 30, 2023” (para 4). The trust supplied the information, on Schedule 15 of its T3 return, only on October 24, 2025, about eighteen months after the return was due (para 5). The Minister imposed a late-filing penalty under subsection 162(7); the essential facts were agreed (para 2).

Issues

Whether the trust’s final taxation year ended on December 30, 2023, when it ceased to exist, or on December 31, 2023, so as to be a taxation year “that end[ed] after December 30, 2023” to which section 204.2 of the Regulations applied (paras 1 and 6). A subsidiary question was whether the trust’s reliance on the CRA’s T3 Trust Guide supported a due diligence defence to the penalty (paras 27-28).

Holding

The appeal was dismissed without costs (para 29). The taxation year of a non-testamentary trust is the calendar year under paragraph 249(1)(c) of the Act, and that year ends on December 31 even where the trust is dissolved earlier in the year (paras 23-24). Subsection 249(1.1) creates no exception (paras 13-21). The T3 Guide was not unclear and did not ground a due diligence defence (para 28).

The court’s reasoning

The parties accepted that “taxation year” in the coming-into-force provision of the amending statute takes its meaning from subsection 249(1) of the Act, and Rabinovitch J. agreed, relying on subsection 42(3) and paragraph 15(2)(b) of the Interpretation Act to carry the Act’s definition into the amending statute (para 8). Subsection 249(1) provides that, “except as expressly otherwise provided”, a taxation year is a fiscal period for a corporation or Canadian resident partnership, the accounting period of a graduated rate estate, and “in any other case, a calendar year” (para 9); paragraph (c) governed this trust (para 10). The trust’s principal argument rested on subsection 249(1.1), which provides that when a taxation year is referred to by reference to a calendar year, the reference is to the taxation year that coincides with or ends in that calendar year; on the trust’s reading, a trust dissolved mid-year has a short year (paras 11-12).

Applying the textual, contextual and purposive approach from Canada Trustco through Deans Knight (para 15), the court rejected that reading. Nothing in subsection 249(1) says a trust’s year ends on dissolution (para 13). The more natural reading of subsection 249(1.1) is that it addresses provisions which identify a particular taxation year by its calendar year, such as a “2026 taxation year”, a usage otherwise ambiguous for entities with non-calendar fiscal periods (para 14); the Act contains many such references, for example the “1972 taxation year” in the definition of “private corporation” in section 89 (para 16). The legislative history since 1944 confirmed that purpose (paras 17-21).

The court declined to extend by analogy the obiter suggestion in Katz Estate that a deceased individual’s taxation year ends at death (paras 22-23). Three considerations drove the result. The text of paragraph 249(1)(c) is clear, and the 2013 addition of “except as expressly otherwise provided” signals that Parliament states the exceptions when it wants them, as it has for certain trusts (subsections 149.1(1) and 95(1), section 132.11) and through deemed year-ends such as subsection 128.1(4) and paragraph 104(13.4)(a) (para 24). Several provisions, notably subsections 132(6.2), 146(4) and 250(6.1), make sense only if a dissolved trust’s year continues to December 31 (para 25). And an early year-end would accelerate the 90-day filing deadline under paragraph 150(1)(c) and section 204 of the Regulations into the trust’s most complicated compliance year, whereas Parliament, when it imposes unusual deemed year-ends on trusts, often expressly prevents that acceleration, as in subsections 94(5.2), 104(13.4)(c) and 251.2(7) (para 26).

On the penalty, the court had no jurisdiction to order the Minister to cancel it (para 27). The T3 Guide did not support a due diligence defence: it correctly states the 90-day deadline and the December 31 year-end for trusts other than graduated rate estates, says nothing about dissolution creating a deemed year-end, and the appellant’s agent, a seasoned accountant, would have known that the Act contains no such rule and that the CRA’s published positions agree with the Crown (para 28).

Practical implications

The decision closes an argument sometimes advanced informally: that winding up a trust before December 31, 2023 kept it outside the expanded trust reporting regime. On this reasoning, any non-testamentary trust that existed at any point in 2023 had a taxation year ending December 31, 2023 and fell within section 204.2 of the Regulations for that year, subject to the exclusions in paragraphs 150(1.2)(a) to (r). The same logic applies to later years: a trust dissolved in March has a taxation year ending the following December 31, a return due 90 days after that, and Schedule 15 reporting for the year of dissolution.

The judgment is careful about its limits: Rabinovitch J. expressly reserved the position of deceased individuals, dissolved corporations, partnerships and graduated rate estates (footnote 10), so Katz Estate is not overruled. The reasons also note, without deciding, that section 204.2 does not itself say when the information must be provided, reading its references to the subsection 150(1) return as showing that it must accompany the return (para 5). In my view that reading is likely to be followed, but a trust that filed its return on time and Schedule 15 late may still wish to test the point. The due diligence discussion confirms that reliance on an accurate CRA guide will not excuse a late filing by an experienced adviser; the remedy for confusing CRA publications, if any, is a taxpayer relief request under subsection 220(3.1), not an appeal to the Tax Court.

If a trust in your care was dissolved during 2023 or later and Schedule 15 was not filed with the T3 return for the year of dissolution, the penalty exposure under subsection 162(7) is real and, on this decision, not defensible on the “short year” theory. File the missing information now, consider a taxpayer relief request where the circumstances warrant it, and treat December 31 of the year of dissolution as the year-end for every trust that is not a graduated rate estate. Whether an appeal was taken is not verified here; as an informal procedure decision the judgment binds only the parties, but its reasoning is thorough and is likely to be applied.

This comment is general information, not legal advice. The law may have changed since the decision; check the current text in the tax wiki.

Citation and links

The Gerald Kowarsky Trust v. His Majesty the King, 2026 TCC 174, judgment of 22 September 2026, Rabinovitch J., informal procedure, court file 2026-924(IT)I. Reasons on the Tax Court’s site. Also on CanLII. This was a first-instance appeal from a reassessment; there is no decision under appeal.