TSG (Tax Specialist Group) - Immigrant Trusts (Immigrant Trusts)

For forty years, Canada allowed an exemption from tax for a non-resident trust. As a general rule, if a Canadian resident person transfers property to a foreign trust, the trust will be deemed Canadian resident, and therefore taxable on its world income. An exemption from this deemed residence (and tax on world income) was allowed for a trust where contributions were only made by an individual or individuals who had not been resident in Canada for 60 months. The exemption was limited to the 60 months and was often used by a person immigrating to Canada. These types of trusts are typically referred to as immigrant trusts.

In the February, 2014 Federal Budget, the immigrant trust exemption was withdrawn for all immigrant trusts, even if they were already created. If no contributions were made on or after the budget date, an immigrant trust will be taxable on its world income starting January 1, 2015. Otherwise, the trust became taxable on its world income from January 1, 2014 onwards.

All persons with immigrant trusts will benefit from professional advice concerning various tax planning options which are available. Also, if the trust is going to be wound up, or made Canadian resident by a change of trustees, a variety of considerations apply. These include:

How exactly to wind up the trust and any underlying corporate restructuring.
When to wind up the trust (before the end of 2014 or in 2015).
When to change the trustee, if this is the preferred course of action (in 2014 or early in 2015).

It is very important to note that while some immigrant trusts will be exempt from Canadian tax until the end of 2014, a distribution of income from the immigrant trust to a Canadian resident beneficiary will be taxable. Because of this, the tax planning will not be as straight forward as it might first appear.

If you require assistance in dealing with the change in the taxation of an immigrant trust, we would be happy to assist you.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.