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Non – Resident Trusts

By Author: pooja kapoor
Total Articles: 50

The ITA contains provisions designed to prevent undue deferral f tax through the use of non – resident trusts. Recent amendments, which are notoriously convoluted, revamp the treatment of non – resident trust – under this new approach, whenever a Canadian resident has made a “contribution” of property to a non – resident trust - or there is a resident beneficiary under a non – resident trust – the trust is deemed to be resident in Canada contributor, the non – resident trust, and to some extent, certain specified Canadian beneficiaries may be jointly and severally liable for this tax. This means that the whole tax liability could be laid on the Canadian contributor if the trust itself cannot be reached. There are look – through rules to capture trusts where transfers have been made within five years of immigration or emigration. www.insuranceplancanada.com

In the recent Supreme Court of Canada decision in St. Michael Trust Corp. et al. v. the Queen (2012 SCC 14), the Court denied the taxpayer’s appeal and held that the residence of a trust is determined by using the central management and control tests similar to those used to determine the residency of a corporation. The trusts in question were Barbados – resident trusts with a Barbados – resident trustee; however, the Court establishes that care and control of these trusts remained with the settlor who resided in Canada and thus residence of the trusts was held to be in Canada. www.insuranceplancanada.com

Although these tests may not apply in every fact situation, it is clear that the courts view residency of a trust more in line with the position taken by the CRA, making it more difficult to control off – shore money from within Canada without some tax consequence in Canada.

Note that these proposed rules do not appear to apply to the non – resident immigration trusts discussed above; the latter are accorded special treatment under the ITA. As well, proposed “qualified disability trusts” would be exempted from certain deemed residency rules www.insuranceplancanada.com

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