24 March 2026 External T.I. 2025-1061181E5 - Application of section 94: where contributions predate the 2007 taxation year.

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: 1. Would a non-resident trust be deemed to be resident in Canada pursuant to paragraph 94(3)(a) when the relevant contribution was made to the trust in a year which predates the enactment of paragraph 94(3)(a) in a situation where all conditions are otherwise met? 2. How does the application of a tax treaty impact the application of subsection 94(3)? 3. What are the implications of applying section 94 to a non-resident trust which is not resident in a country with which Canada has a tax treaty?

Position: 1. Yes. 2. See below. 3. See below.

Reasons: 1. The event which triggers the application of section 94 can occur in taxation years which predate its enactment. 2. See below. 3. See below.

XXXXXXXXXX 2025-106118
D. Dannehl

March 24, 2026

Dear XXXXXXXXXX:

Re: Request for Technical Interpretation

We are writing in response to your correspondence of March 28, 2025, wherein you requested clarification in respect of the application of the non-resident trust rules in section 94 of the Income Tax Act (the “Act”).

In particular, you asked for our comments in respect of the following issues:

1. The application of subsection 94(3) of the Act, and the related provisions, to a situation where a factually non-resident trust or its wholly owned subsidiary corporation subscribed for shares of a corporation resident in Canada prior to the application date of the of the relevant existing provisions of section 94 of the Act (which are applicable to taxation years of trusts which end after 2006), where no election was made for an earlier application date;

2. How the application of a tax treaty (footnote 1) would impact the application of subsection 94(3) of the Act; and

3. The implications of applying section 94 of the Act to a non-resident trust which is not resident in a country with which Canada has a tax treaty.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

1. Contributions made to a factually non-resident trust prior to 2007

You have described a situation where the subscription of shares of a corporation resident in Canada was made by a factually non-resident trust and/or a Canadian resident corporation wholly owned by a factually non-resident trust prior to the 2007 taxation year. Given that section 94 of the Act was amended several years ago with application to taxation years of trusts that end after 2006, you question whether consideration must be given to the application of section 94 in respect of a deemed transfer or loan of property to a factually non-resident trust that took place prior to that time.

Generally speaking, paragraph 94(3)(a) of the Act will apply to a non-resident trust (other than an “exempt foreign trust” (footnote 2)), where, at a “specified time” in respect of the trust for the taxation year (generally, the end of the taxation year), there is a “resident contributor” to the trust or a “resident beneficiary” under the trust. When this is the case, the trust is deemed to be resident in Canada throughout the relevant taxation year for the purposes specified therein.

The definition of “contributor” can be tested for at any time and specifically contemplates contributions made to a trust at or any time before the time in which that definition is being considered. Therefore, where a person has made a “contribution” to a non-resident trust before 2007, that person will be a “contributor” to the trust, unless that person is an “exempt person”. If that person is also resident in Canada at the time of testing, that person will, generally speaking, be a “resident contributor” to the trust and accordingly, paragraph 94(3)(a) of the Act will apply to the trust for its relevant taxation years that end after 2006 regardless of the fact that the contribution was made prior to the 2007 taxation year.

In addition, it is our understanding that the situations that you are considering may involve the deeming provisions in paragraphs 94(2)(a) and/or (g) of the Act. Therefore, it must also be noted that paragraph 94(2)(a) contains the words “at any time” and paragraph 94(2)(g) contains the words “at the time”. Accordingly, the event which triggers one of these provisions can occur in taxation years before the trust’s 2007 taxation year, with the effect that section 94 of the Act will apply beginning in the trust’s 2007 taxation year.

2. Treaty Implications: Foreign jurisdiction with which Canada has entered into a tax treaty

You have also questioned whether a tax treaty should govern the taxation of a trust which is deemed to be resident in Canada pursuant to subsection 94(3) of the Act rather than the provisions of section 94 of the Act.

You are of the view, based on the decision of the Federal Court of Appeal in St. Michael Trust Corp. et al [Garron] v The Queen (“Garron”), that a trust to which section 94 applies is not resident in Canada for the purposes of a relevant tax treaty. However, the decision in Garron relied on former section 94 of the Act, applicable to taxation years ending prior to 2007.

Beginning with taxation years of trusts ending after 2006, section 94 of the Act (“current section 94”) imposes a more comprehensive taxing regime in that trusts subject to these rules are now taxed on their world-wide income.

Also note that section 4.3 of the Income Tax Conventions Interpretation Act, effective as of March 5, 2010, clarifies that a trust which is deemed to be resident in Canada pursuant to subsection 94(3) of the Act “will be a resident of Canada and not a resident of the other contracting state for the purposes of applying the convention”.

Therefore, for Canadian income tax purposes, a trust which is deemed to be resident in Canada pursuant to subsection 94(3) of the Act will be considered to be a resident of Canada for the purposes of applying a particular tax treaty and not a resident of the other contracting state. In that context, section 94 of the Act provides comprehensive relief for the foreign taxes paid by a deemed resident trust. Also, once T3RET Trust Income Tax and Information Returns have been filed in Canada, a request can be made to the Canadian competent authority seeking relief from double taxation that remains after the application of section 94.

3. Treaty Implications: Foreign jurisdiction with which Canada has not entered into a tax treaty

Where section 94 of the Act applies to a non-resident trust, that trust is, pursuant to paragraph 94(3)(a) of the Act taxable, inter alia, on its world-wide income under Part I of the Act. Where such a trust is factually resident in a country with which Canada has not entered into a tax treaty, or other similar agreement, that trust must rely only on section 94 to provide relief for the foreign taxes paid by the trust, if any.

The fact that a tax treaty exists between Canada and a foreign jurisdiction is not relevant to the above comments in respect of the timing of the application of current section 94 to contributions that pre-date its enactment.

We trust that these comments will be of assistance.

Yours truly,

Marina Panourgias, CPA, TEP
Manager
Trust Section I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. Pursuant to subsection 248(1) of the Act a “tax treaty” with a country at any time means a comprehensive agreement or convention for the elimination of double taxation on income, between the Government of Canada and the government of the country, which has the force of law in Canada at that time.

2. All terms annotated in quotes are defined terms in subsection 94(1) of the Act.