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In the February, 2014 Federal Budget, the immigrant trust exemption was withdrawn for all immigrant trusts, even if they were already created.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:
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.
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