Trust wound up on December 30 loses late-filing penalty appeal

The Tax Court of Canada has upheld a late-filing penalty against a trust that wound up on December 30, 2023, finding that its final taxation year still ended on December 31.

In Gerald Kowarsky Trust v. The King, 2026 TCC 174, Justice Ryan P. Rabinovitch dismissed the trust’s appeal on September 22, 2026. The ruling concerns the trust’s 2023 taxation year and does not set out the amount of the penalty.

The decision turns on a distinction between ending a trust’s affairs and ending its taxation year. For this non-testamentary trust, dissolution did not displace the Income Tax Act’s calendar-year rule.

A one-day difference with reporting consequences

The trust was established as an alter-ego trust in November 2005 and wound up its affairs on December 30, 2023.

Legislation enacted in December 2022 introduced a requirement for certain trusts to provide information about their trustees, beneficiaries and settlors. The new regulation applied to taxation years ending after December 30, 2023.

The trust eventually provided that information through Schedule 15 of its T3 return on October 24, 2025. The court described that as approximately a year and a half after the return was due. In March 2026, the Minister of National Revenue reassessed the trust and imposed a late-filing penalty under subsection 162(7) of the Act.

The trust argued that its final taxation year ended when it ceased to exist on December 30. On that view, it fell outside the new reporting requirement altogether and supplied Schedule 15 voluntarily. The Crown disagreed.

The calendar-year rule survived the windup

The parties agreed that paragraph 249(1)(c) of the Act applied. That provision generally makes the taxation year a calendar year for taxpayers outside the separate rules for corporations, Canadian-resident partnerships and graduated rate estates.

The trust relied on subsection 249(1.1), which explains references to taxation years by calendar year. It said that provision supported a shortened final taxation year.

Justice Rabinovitch rejected that reading. The provision does not say that a trust’s taxation year ends upon dissolution. Read in its legislative context and history, it explains which taxation year a statute means when it identifies one by a particular calendar year. It does not create the exception the trust sought.

The judge also considered whether reasoning from an older case involving a deceased individual should apply by analogy. He concluded that the statutory text, context and purpose supported a December 31 year-end for this trust.

One important feature was the Act’s express qualification that the general year-end rules apply unless otherwise expressly provided. Parliament has created specific exceptions and deemed year-ends, including for certain changes in residence and deaths of trust beneficiaries. Winding up this trust did not bring it within such an exception.

Other provisions reinforced that conclusion. Rules dealing with mutual fund trusts and the residence of dissolved trusts contemplate a taxation year continuing after a trust ceases to exist.

The filing consequences also mattered. Treating dissolution as an immediate year-end could accelerate the deadline for a final return during a potentially complicated compliance year. The judge did not accept that Parliament intended that result.

Reliance on the CRA guide did not excuse the filing

The trust also suggested the penalty should be cancelled because the T3 Trust Guide was misleading. The court explained that it lacked jurisdiction to order the Minister to cancel the penalty on that basis, but considered whether reliance on the guide established a due-diligence defence.

It did not. The guide said trusts other than graduated rate estates generally use a December 31 year-end and identified exceptions. It did not say dissolution creates a deemed year-end. The judge also considered the experience of the accountant who had consulted the guide and published CRA statements taking the same position as the Crown.

The appeal was dismissed without costs under the informal procedure.

The ruling addresses the statutory year-end issue for the trust before the court. The judge expressly left unanswered the final-year treatment of deceased individuals, dissolved corporations, Canadian-resident partnerships and graduated rate estates. It should not be read as a universal statement that every trust has the same reporting obligations or that specific statutory exceptions cease to apply.