2 June 2026 STEP Roundtable Q. 5, 2026-1091041C6 - Canadian Real Property Transferred by U.S. Person to U.S. Grantor Trust

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. Is a transfer of Canadian real estate by a U.S. individual to a U.S. revocable living trust a disposition at FMV for Canadian income tax purposes? 2 Is the individual obligated to comply with the reporting obligations under section 116?

Position: 1. Yes. 2. Yes.

Reasons: Previous positions and the law.

2026 STEP CRA Roundtable – June 2, 2026

QUESTION 5. Canadian Real Property Transferred by U.S. Person to U.S. Grantor Trust

An individual is a citizen and resident of the U.S. for income tax purposes and has never been a resident of Canada for income tax purposes. The individual owns Canadian real property. For U.S. probate and tax planning purposes, the individual will settle a U.S. grantor trust by transferring the Canadian real property to the trust. The terms of the trust provide that the individual will be the trustee of the trust and the sole capital and income beneficiary of the trust during their lifetime, and that the property will be distributed to certain family members after the individual’s death (also referred to as a “U.S. revocable living trust”). Central management and control of the trust will reside in the U.S.

For U.S. income tax purposes, the U.S. grantor trust is disregarded such that the individual will not be treated as having disposed of the Canadian real property. Further, the U.S. resident individual will not be making a request under Article XIII(8) of the Canada - U.S. Tax Treaty.

1. Can the CRA confirm that, even though this would not result in a disposition for U.S. tax purposes, that for Canadian income tax purposes the individual will be treated as having disposed of the Canadian real estate for fair market value proceeds?

2. Can the CRA also confirm that the individual would be obligated to comply with the reporting obligations under section 116?

CRA Response

Part 1:

It has been the Canada Revenue Agency’s (“CRA”) longstanding opinion that a U.S. revocable living trust should be recognized for income tax purposes at the time that legal title to property is transferred to it and that the transfer of the property is at its full fair market value (and not the value of the remainder interest only). This continues to be the CRA’s opinion in respect of U.S. revocable living trusts.

As stated in Document #2016-0645781C6, it is the CRA’s view that a key distinguishing factor between a U.S. revocable living trust and a bare trust is that a U.S. revocable living trust generally includes beneficiaries that are contingent on the death of the settlor/grantor. As such, there is a change of beneficial ownership in respect of a transfer to a U.S. revocable living trust.

As the “Canadian real property” is real or immovable property situated in Canada, it therefore meets the definition of the term “taxable Canadian property” in subsection 248(1) of the Income Tax Act (the “Act”). Accordingly, for Canadian income tax purposes, the transfer of Canadian real property by the U.S. resident individual to the U.S. revocable living trust would constitute a disposition of taxable Canadian property for proceeds of disposition equal to the fair market value of the Canadian real property pursuant to paragraph 69(1)(b) of the Act. Any taxable capital gain should be reported for Canadian income tax purposes by the individual for the taxation year in which the Canadian real property is transferred to the U.S. revocable living trust pursuant to paragraph 115(1)(b) of the Act.

Part 2:

The rules of section 116 of the Act apply when a non-resident person disposes of certain taxable Canadian property, which includes real or immovable property situated in Canada. The non-resident person will be required to notify the CRA either before the disposition or within 10 days after the disposition, using form T2062, and is required to submit a payment (or acceptable security) equal to 25% of the gain on the disposition. The gain is generally calculated as the amount of the proceeds of disposition less the adjusted cost base of the property.

Since the transfer of the Canadian real property by the U.S. resident individual to the U.S. revocable living trust is a disposition of taxable Canadian property that is made to a person with whom the U.S. resident individual is not dealing with at arm’s length for no proceeds of disposition (or for proceeds of disposition less than the fair market value of the property), then for purposes of subsections 116(1) and 116(3) of the Act, the U.S. resident individual’s proceeds of disposition are considered to be equal to the fair market value of that property, pursuant to subsection 116(5.1) of the Act. In addition, the U.S. revocable living trust may have a potential liability under subsection 116(5) of the Act.

Aleksandra Bogdan and Kanwal Graham
2026-109104