Principal Issues: Elimination of 60 month Immigrant trust exemption & timing of beginning of resident trust year
Position: Depends on whether contributions were made to the trust before or after budget date & when the actual 60 month expiry would have been.
Reasons: See paragraphs 28 & 29 of NWMM
STEP CRA ROUNDTABLE - June 2014
QUESTION 10. Cancellation of Immigrant Trust Exemption
The February 11, 2014 Federal Budget proposes to terminate the exemption in the non-resident trust rules (Section 94) for a contributor who has not been resident in Canada for 60 months. This exemption currently allows a Canadian resident individual to transfer property to a non-resident trust without that trust being deemed Canadian resident until such time as the individual had been a resident in Canada for 60 months in aggregate.
Both the previous version of Section 94 and the current version provide that a trust will be deemed resident as of the beginning of its taxation year, which for an inter vivos trust would be January 1.
To illustrate this, suppose that an individual, who was never previously Canadian resident, became resident on August 1, 2009. Assuming the individual remained Canadian resident thereafter, he or she would be resident for 60 months as of August 1, 2014. A non-resident trust to which the individual has made a contribution would be deemed resident under Section 94 in 2014, as of January 1.
Do you agree with this analysis?
CRA Response
The Department of Finance 2014 Budget Plan Annex 2 - Tax Measures: Supplementary Information provides the following statements:
Budget 2014 proposes to eliminate the 60-month exemption from the deemed residence rules, including related rules that apply to non-resident trusts.
This measure will apply in respect of trusts for taxation years:
- that end after 2014 if (i) at any time that is after 2013 and before Budget Day the 60-month exemption applies in respect of the trust, and (ii) no contributions are made to the trust on or after Budget Day and before 2015;
or
- that end on or after Budget Day in any other case.
Paragraphs 28 & 29 of the Notices of Ways and Means Motions in Annex 2 of the Budget Plan detail the draft legislation in this regard. Provided the legislation is enacted as drafted we agree with your analysis as the 60 month exemption period would otherwise end in 2014, after the Budget Day.
To further illustrate, in a case where the 60 month exemption would otherwise expire in 2015 (i.e., same example as above except the individual became resident on August 1 of 2010) and no contributions were made to the trust on or after Budget day and before 2015, the measure would apply for the trust's taxation year beginning January 1, 2015 and ending December 31, 2015. If however, contributions were made to this trust on or after Budget Day, even though the 60-month time period would not expire until after 2014, the measure would be effective for the taxation year ending December 31, 2014 and this trust would be deemed resident in Canada pursuant to subsection 94(3) of the Act, for the purposes outlined therein, with effect from January 1, 2014.
Lena Holloway
2014-052982