CRA confirms that a non-resident trust can be retroactively (going back 5 years) deemed to have been resident in Canada if a non-resident contributor immigrates

A non-resident trust has resident beneficiaries with a current potential entitlement to receive income or capital and its contributor (Mr. X) had made a contribution to the trust less than 60 months before becoming resident.

At the 2018 STEP Roundtable, CRA indicated that in light inter alia of the lookback rule in s. 94(10), the trust is deemed to be resident for the five taxation years before the taxation year in which the individual became resident in Canada. Thus, the trust will be subject to interest and late-filing penalties for failure to have filed T3 returns (reporting its income for those years) and (where applicable) T1135 or T1134 returns for those years.

In the official written response provided to STEP Canada a few days ago, CRA expanded on the example provided orally by providing two further examples:

• where the contributor (Mr. Z) was not a non-resident for 60 months prior to making the contribution (i.e., Mr. Z became a non-resident in 2010 and made the contribution in 2013, before becoming resident again in 2018), the non-resident trust would be deemed to be resident in Canada by virtue of s. 94(3) commencing in the taxation year during which the contributor made the contribution to the non-resident trust (i.e., 2013)
• it is unnecessary for the contributor to have never been a resident of Canada before making the contribution to a non-resident trust for s. 94(10) to apply (e.g., Mr. Y became a non-resident in 2008, made the contribution in 2013 and became resident again in 2018).

Neal Armstrong. Summaries of 29 May 2018 STEP Roundtable Q.14 under s. 94(3)(a) and s. 94(10).