Transferring property to a Canadian trust in anticipation of emigration can result in a 55% combined tax rate on distributions of the related income

Generally, s. 104(4)(a.3) will trigger a deemed disposition of the property held by a personal trust if a taxpayer transferred property to the trust and it is reasonable to conclude that the property was transferred in anticipation that the taxpayer would subsequently cease to reside in Canada. Furthermore, the conversion of the trust's deemed disposition income into "designated income" for purposes of the 40% Part XII.2 tax will prevent departure tax gains, taxed under Part I of the Act, from being converted into trust income that is paid to non-resident beneficiaries at the end of the year and taxed only under Part XIII. In addition to the Part XII.2 tax paid by the trust, the designated income paid to the (now) non-resident beneficiary will be subject to Part XIII tax of 25% (or 15% if Treaty-reduced), resulting in a combined effective tax rate of 55% (or 49%).

Neal Armstrong. Summaries of Brian Kearl and Carl Deeprose, Leaving Canada's New High Tax Rate Regime: Considerations, Tips and Traps, 2016 CTF Annual Conference draft paper under s. 250(1)(a), s. 2(1), Treaties, Art. 4, s. 128.1(1)(d), Treaties – Art. 18 and s. 210(1) – designated income – s. (c)(ii).