Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Would a taxpayer be deemed to dispose of their interest in an alter ego trust upon emigration from Canada?
Position: Question of fact
Reasons: No deemed disposition if facts lead to a conclusion that the interest is an "excluded right or interest", or if the conditions in 128.1(4)(b)(iv) apply.
2012 September CICA Compliance Conference
Would a taxpayer be deemed to dispose of their interest in an "alter-ego trust" (as defined by subsection 248(1) of the Act) upon emigration from Canada pursuant to paragraph 128.1(4)(b) of the Act?
Pursuant to subsection 248(1) of the Income Tax Act (the "Act"), the term "alter ego trust" refers to a trust to which paragraph 104(4)(a) applies, if read without reference to subparagraph 104(4)(a)(iii) and clauses 104(4)(a)(iv)(B) and (C). Accordingly, a reference to an alter ego trust in the Act is a reference to an inter vivos trust established after 1999 by an individual who is at least 65 years old when the trust is settled, and under which that individual is entitled to receive all the income of the trust arising before his or her death and under which no person except that individual may receive or otherwise obtain the use of any of the income or capital of the trust before that individual's death.
Where an individual ceases to be resident in Canada at a particular time, paragraph 128.1(4)(b) provides that the individual is deemed to have disposed of each property owned, other than those exceptions listed in subparagraphs (i) to (v). Subparagraph 128.1(4)(b)(iii) provides that an "excluded right or interest", as defined in subsection 128.1(10), is not deemed to have been disposed of at emigration by an individual. Pursuant to paragraph (j) of that definition, an excluded right or interest includes an interest in a personal trust resident in Canada that was never acquired for consideration and did not arise as a result of a transfer of property to the trust by that individual that would be a qualifying disposition (if subsection 107.4(1) were read without paragraphs (h) and (i)). Note that subsection 108(7) of the Act provides, inter alia, that for purposes of the definitions of "excluded right or interest" and "personal trust" (as defined in subsection 248(1)), a person, or two or more related persons, can contribute to the trust and hold an interest in the trust, without failing the acquisition for consideration prohibition in those provisions.
In addition to the exception noted above, subparagraph 128.1(4)(b)(iv) provides that an individual (other than a trust) who has been resident in Canada for 60 months or less during the 10-year period before emigrating will not be deemed to dispose of property that he or she owned on last becoming resident in Canada, or inherited after last becoming resident here.
Depending on the facts in a particular scenario, paragraph 104(4)(a.3) of the Act may apply to deem a disposition day for the alter ego trust. In general, paragraph 104(4)(a.3) will apply where certain property has been transferred to the trust pursuant to subsection 73(1) by an individual in anticipation of his or her subsequent emigration from Canada.
September 13, 2012
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