Canada: Determination of whether corporations in “trust sandwich” are considered connected made at trust’s taxation year end
Reversing earlier decision of Tax Court of Canada
The Federal Court of Appeal on August 11, 2025, held—reversing an earlier decision of the Tax Court of Canada—that whether two corporations in a so-called “trust sandwich” are considered connected, such that a dividend paid to the corporation at the top of the sandwich will not attract Part IV tax under the Income Tax Act, is determined at the trust’s taxation year end.
The Tax Court had concluded that connectedness for Part IV tax is generally determined on receipt of the dividend, and the beneficiary is treated as receiving the dividend on the same date that the trust receives the dividend, unless the applicable deeming rules specifically assign a different taxation year for the beneficiary’s receipt.
The case is: The King v. Vefghi Holding Corp., 2025 FCA 143
Read a September 2025 report prepared by the KPMG member firm in Canada