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: Is the estate of a Canadian resident considered to be a "contributor" to a child's trust in a foreign jurisdiction?
Position: Yes.
Reasons: Pursuant to the definitions of "contributor" and "contribution" in subsection 94(1) and the application of paragraph 94(2)(g) of the Act.
STEP CRA Roundtable - June 2014
QUESTION 12. Non-Resident Trusts and Section 94
A non-resident trust will be deemed to be resident in Canada for many purposes of the Act if it has a "resident beneficiary" or a "resident contributor" (as these terms are defined in section 94). The term "resident beneficiary" means a person (other than a successor beneficiary or exempt person) that is a beneficiary under the trust if at that time the person is resident in Canada and there is a connected contributor to the trust. The term "connected contributor" is also defined in the Act.
Suppose that an individual dies leaving a Will in which the deceased establishes a trust for the benefit of a US resident child and upon the death of the US resident child, a gift over to that deceased child's children (the deceased's grandchildren). The executor of the Will is a resident of Canada, and administers the Will in Canada by, for example, gathering the deceased's assets, discharging his liabilities and paying out specific bequests and legacies. The estate may continue in existence for some time after the child's trust is funded, dealing with tax matters and unadministered assets. However the trustee of the child's trust is resident in the US and central management and control of the trust will be (is) located in the US. There is no person (other than a successor beneficiary or exempt person) who is a beneficiary (i.e. beneficially interested) under the child's trust who is resident in Canada.
Although the deceased will be classified as a "connected contributor" to the trust for purposes of section 94, since there are no Canadian residents "beneficially interested" in the Trust, there will not be a "resident beneficiary". Thus, the trust will not be deemed resident in Canada by virtue of the "resident beneficiary" test.
Despite this conclusion, for the purposes of section 94 it is possible to have multiple contributors to the same Trust. For example, paragraph 94(2)(n) provides that a contribution made at any time by a particular trust (which would include an estate) to another trust is deemed to have been made at that time jointly by the particular trust and by each person that is at that time a contributor to the particular trust.
Is the deceased's estate considered to be a contributor to the child's trust or is the only contributor the deceased himself?
CRA Response
Generally, by virtue of the definition of "trust" in subsection 248(1), an estate is a trust under the Income Tax Act (the "Act"). For purposes of the non-resident trust rules in section 94, the "trust" definition in subsection 94(1) clarifies that, for greater certainty, a reference to a trust includes an estate. In order to determine if the deceased's estate in the given scenario is considered to be a contributor to the child's trust, one must consider the definitions of "contributor" and "contribution" in subsection 94(1) of the Act.
A "contributor" to a trust at any time means a person, other than an exempt person but including a person that has ceased to exist, that at or before that time has made a "contribution" (within the meaning assigned by subsections 94(1) and (2)) to the trust.
Pursuant to the definition of "contribution" in subsection 94(1), a contribution to a trust by a particular person or partnership includes a transfer or loan (other than an arm's length transfer) of property to the trust by the particular person or partnership.
Pursuant to paragraph 94(2)(g), when the child's trust acquires its interest in the deceased's estate, the estate will be deemed to have transferred the interest to the child's trust. Accordingly, the deceased's estate will be considered to be a contributor to the child's trust.
Furthermore, pursuant to paragraph 94(2)(n), "a contribution made at any time by a particular trust to another trust is deemed to have been made at that time jointly by the particular trust and by each person or partnership that is at that time a contributor to the particular trust
". Therefore, in the given instance, the deceased is also considered to be a contributor to the child's trust.
Vyjayanthi Srikanth
2014-052307
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