Immigration Trusts

The February 11, 2014 federal budget has proposed to eliminate tax benefits of many estates and trusts; one of which is the immigration trust.

Many new immigrants to Canada have relied on the non-resident trust exemption to avoid tax on the trusts' foreign-source income during their first five years in Canada. For this reason these trusts have become known as ‘immigrant trusts’.

Here’s how it worked: where a person resident in Canada has contributed property to a non-resident trust, the Income Tax Act (the Act) has traditionally deemed the non-resident trust to be resident in Canada and subject to Canadian income tax. An exemption for non-resident trusts has previously existed for individual contributors to a non-resident trust who have been resident in Canada for less than 60 months though; Budget 2014 removed this exemption from the Act.

The non-resident trust exemption will be eliminated effective for years ending on or after February 11, 2014. There are a few transitional measures, but they do not provide much relief: the new law will not go into effect until a trust's first taxation year that ends after 2014 if the exemption applies to the trust at any time after 2013 and before February 11, 2014, and no contributions are made to the trust on or after February 11, 2014 and before 2015.

Coupled with other recent changes in citizenship and immigration law, these changes could affect the number of high net-worth individuals seeking to immigrate to Canada.