Deemed Resident Trust
A non-resident trust, other than an exempt foreign trust, is deemed to be a resident trust for a particular taxation year if, at the end of the year or immediately before the trust ceases to exist, it has a resident contributor or both a resident beneficiary and a connected contributor.
The contributor to a non-resident trust is a person that makes a contribution of property to the trust by means of a loan or transfer, other than an arm's length transfer. However, a person may be considered to be a contributor to a trust if, as applicable:
- the loan or transfer (other than an arm's length transfer) of property by the person or the partnership of which the person is a member is to another person or partnership in circumstances where the transfer or loan generates, at that time, either an increase in the fair market value (FMV) of one or more properties held by the trust or a decrease in a known or contingent liability of the trust;
- the transfer of restricted property or the loan of property other than an arm's length transfer by the person or the partnership of which the person is a member is to another person or partnership and, at that time or at a later time, the trust holds property whose FMV is derived, in whole or in part, directly or indirectly, from property held by the other person or partnership.
If a non-resident trust is considered to be a revocable or blind trust for property it received, either directly or indirectly, from an individual resident in Québec or a corporation that has an establishment in Québec, the transfer or loan of the property to the trust is deemed to be a transfer or loan of restricted property. The trust may then be subject to the presumption of residency.
The presumption of residency does not apply to a non-resident trust that is designated as a qualified disability trust.
If the presumption of residency applies to a non-resident trust for a taxation year, the trust is deemed to be resident in Canada throughout the year. This presumption applies to:
- the calculation of income tax and the foreign tax credit (see the notes below);
- the tax treatment further to certain elections made in the federal income tax return (for information on these elections, see sections 5.1.3, 5.3.2 and 5.3.3 of the Guide to Filing the Trust Income Tax Return [TP-646.G-V]); and
- certain rules, such as the presumption concerning trust income for the benefit of a beneficiary under 21 years of age and the designation of certain income or capital gains allocated to the beneficiaries.
- If a resident trust pools its income to calculate the foreign income tax payable in the country where it is resident for a given taxation year, it must not include its income from Canadian sources.
- All foreign income of a deemed resident trust is deemed to be from the foreign country in which the trust is resident at the end of the taxation year or immediately before the trust ceased to exist (if it ceased to exist in the year), and all foreign income tax paid by the trust for the year is deemed to have been paid to the government of that country.
Such a trust will therefore have to file the Trust Income Tax Return (form TP-646-V) and RL-16 slips (see courtesy translation RL-16-T) if it has a resident contributor or both a resident beneficiary and a connected contributor at the end of the taxation year. The trust and each resident contributor or beneficiary are solidarily liable in matters pertaining to the trust's fiscal rights and obligations.
The following two elections may be made to decrease the tax burden of a deemed resident trust: