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: As a result of the proposed termination of the immigrant trust exemption in the 2014 Budget, will the foreign trust be deemed to be resident in Canada from the beginning of the year in which the individual contributor immigrates to Canada?
Position: Question of fact.
Reasons: Yes, if subsection 94(3) applies; No if the trust is factually resident in Canada and 94(3) does not apply.
STEP CRA Roundtable - June 2014
Question 11. Cancellation of Immigration Trust Exemption For New Immigrants
If the immigrant trust exemption is withdrawn, it would appear that a non-resident trust could be deemed to be resident in the year that an individual who is a contributor becomes resident, and as of January 1 of that current year.
Consider the case of the new immigrant to Canada, who, many years ago in his or her foreign jurisdiction established a trust. The individual becomes Canadian resident say as of August 1, 2015. As a result of the termination of the "immigrant trust" exemption, the foreign trust would be deemed Canadian resident as of January 1, 2015, which pre dates the person's actual arrival to Canada by 7 months.
Do you agree with this analysis?
CRA Response
As is noted in Annex 2 to the 2014 Budget Plan, the Department of Finance proposes to eliminate the 60-month exemption from the deemed residence rules, including related rules that apply to non-resident trusts. In the above-described situation, it will be a question of fact whether the foreign trust is a deemed resident trust pursuant to subsection 94(3) of the Income Tax Act (the "Act"), or is determined to be factually resident in Canada, when the individual who established the trust immigrates to Canada. For purposes of our response, it is assumed that the trust has always been factually resident in the foreign jurisdiction and remains so following the immigration of the settlor.
Paragraph 94(3)(a) generally provides that if at a specified time in a non-resident trust's taxation year, there is a resident contributor to the trust, or a resident beneficiary under the trust, the trust is deemed resident in Canada throughout the taxation year for the purposes listed in subparagraphs (i) through (x). Note that paragraph 94(4)(d) provides that the application of paragraph 94(3)(a) does not deem the trust to be resident in Canada for the purpose of applying subsection 128.1(1).
Given that the immigrant settled property on the trust, he or she will be a "contributor" to the trust, as defined in subsection 94(1). Assuming that the trust was not created before 1960, upon becoming resident in Canada on August 1, 2015, the immigrant would be a "resident contributor" to the trust (pursuant to the proposed amendment to that definition in the 2014 Budget). Accordingly, the trust will be deemed resident in Canada from January 1, 2015.
Vyjayanthi Srikanth
2014-052983
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