The CRA was asked whether a testamentary trust, created by the will of a resident in Canada for the benefit of a resident of Canada with a non-resident trustee, will be resident in Canada.
The CRA stated that, generally, a trust is considered to reside where the trustee or other legal representative who manages or controls the trust would be considered resident.
Under paragraph 94(1)(c) of the Income Tax Act, a trust may be deemed resident in Canada where
- the amount of income or capital of the trust to be distributed to any beneficiary depends on the exercise or failure to exercise discretion by any person, including the trustee;
- the trust has a beneficiary who is resident in Canada;
- and the trust has received property from, among others, a person related to the beneficiary and the person who contributed the property has been resident in Canada for a total of more than 60 months during his or her lifetime and was resident in Canada at any time during the 18 months prior to the transfer of the property prior to his or her death. Paragraph 94(1)(c) does not apply if the discretionary power relates only to the timing of the payment, rather than the amount of income or capital that is to be distributed.
Where the first criterion noted above is not met but the second and third criteria are met, paragraph 94(1)(d) requires any Canadian beneficiary with 10 per cent or more of the total fair market value of all beneficial interests in the non-resident trust to include an amount in his or her income of a portion of the trust’s foreign property accrual income. Additionally, section 94.1 may apply to require any beneficiaries resident in Canada to include an income amount in respect of his or her interest in the trust annually.
Additionally, under proposed subsection 94(3), a trust that would otherwise not be resident in Canada would be deemed resident in Canada for the purposes elucidated in proposed subsection 94(3) if the trust has either a ‘‘resident contributor’’ or a ‘‘resident beneficiary’’ as those terms are defined in the proposed legislation.
— Document No. 2008-0285961E5, September 16, 2008