The Quebec trust and the common law trust have become favourite
vehicles in the context of putting into place legal and tax
Although the respective characterizations and legal frameworks
of the Quebec trust and of the common law trust (each a
"Canadian Trust") include significant
differences, they are nonetheless treated in a similar way under
our Canadian tax law.
The legal systems of certain countries, including France in
particular, have not recognized the existence of the trust as we
know it in Canadian law, at least until quite recently.
Indeed, certain trusts, including irrevocable and discretionary
Canadian Trusts, were not recognized by the French legal
Certain residents of France have put in place legal structures
that include Canadian Trusts to hold their assets situated in
France or abroad with the aim of reducing their liabilities for
droits de succession et de donations (estate and gift
taxes, hereinafter referred to as "DSD")
as well as for l'impôt de solidarité sur la
fortune (a tax on capital, hereinafter referred to as
"ISF"). However, on July 6, 2011, the
French Parliament adopted a new taxation system that makes Canadian
Trusts and their French beneficiaries, among others, subject to
French tax law (the "New Rules of July
Generally, the New Rules of July 2011 have the effect of dealing
with gaps in the French statutory provisions concerning foreign
trusts, including Canadian Trusts, and of lifting the veils of
these entities in order to subject to DSD and to ISF the persons
who would be subject thereto if foreign trusts were not used. In
addition, new disclosure obligations have been put in place with
respect to the existence and functioning of foreign trusts as well
as the value of the property held by them. Failure to comply with
the disclosure obligations will lead to the imposition of high
penalties for which the trustees, the settlor and the beneficiaries
of the foreign trust will be jointly and severally liable.
As mentioned above, many French residents have, over the years,
used Canadian Trusts to hold their assets with the aim of reducing
the amounts that they must pay in the form of DSD and ISF. With the
introduction of the New Rules of July 2011, many of the structures
put in place are proving to be ineffective from a French taxation
perspective and substantial reorganization is required, possibly
including the liquidation of Canadian Trusts.
The liquidation of a Canadian Trust may result in onerous
Canadian tax consequences. That is why the analysis and putting
into place of a sound and comprehensive tax plan is essential in
order to minimize the potential adverse tax consequences.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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