Moving to Canada with an offshore family trust

If you are considering relocating to Canada there are a number of tax considerations you must make. One factor you must consider is family trusts.

If you have a family trust it is taxable by the CRA.

There are three ways in which income and gains of an offshore trust can become taxable under Canadian tax laws.

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Factual Residency

If you are the sole trustee of the trust and you are in charge of making all of the decisions for the trust, then the trust will often be regarded as a resident by the CRA. The trust will be deemed to have acquired all of its assets at their fair market value (FMV) on the date it became resident, therefore only gains accruing after such dare will be subject to Canadian tax.

The trust will be subject to the same rules as trusts created in Canada

This does not necessarily mean that the trust itself will always be taxable. Where an attribution rule does not apply the trust can avoid Canadian tax by allocating or distributing its income or gains to a beneficiary by its year-end.

 

Deemed Residency

A trust can be managed outsider of Canada and still become a ‘deemed resident’ of Canada through a number of ways. For instance, if one of its contributors becomes a resident of Canada, there is not consideration given as to whether the contributor is a beneficiary or not. Even if the there are multiple contributors to the trust and the Canadian resident contributor contributes less the 1% of the total contributions, the whole trust will become subject to Canadian tax unless a special election is filed by the trust’s filing due dare for the first year in which it becomes a deemed resident

 

Distribution and Allocation

Even if the trust does not become factually or deemed resident of Canadian, a Canadian beneficiary who receives a distribution or allocation of income r gains from such trust will be subject to Canadian tax.

 

Foreign taxes

Finally, you must consider the potential foreign taxes that may be imposed on the income or gains realised by all three types of trust, and whether there will be double taxation, or whether foreign tax credits can be claimed to reduce the incidence of double taxation.

 

Contact us for expert Canadian tax advice