In its recent 2012-2013 Budget delivered on March 20, 2012, the
Government of Québec announced a number of changes to the
taxation of inter vivos trusts.
Tax payable by an inter vivos trust
The tax rate applicable for determining the tax payable by
inter vivos trusts in Québec will correspond to the
highest tax rate applicable for the calculation of tax payable by
an individual i.e. 24%. This amendment will apply for taxation
years of an inter vivos trust ending on or after March 20,
Tax rates applicable to non-resident inter vivos
Prior to the Budget, non-resident inter vivos trusts
owning Québec immovable property were not taxed in
Québec on income from property (i.e. passive rental income
that did not constitute business income earned through an
establishment in Québec) but were only subject to federal
tax and an additional surtax for a combined rate of 42.92%. As a
result of the announced changes, there will now be an additional
5.3% provincial tax on such trusts (defined as "Specified
Trusts") earning property income from such property (defined
as "Specified Immovable Property") so that the rate
applicable for determining the tax payable corresponds to the
highest rate applicable for the calculation of the tax payable by
an individual, being 48.22%. The property income derived from the
rental of specified immovable properties must be calculated
separately from the income from other sources of a specified trust.
Accordingly, a property loss of the specified trust may not reduce
its income earned in Québec from another source in a
A specified trust will be required to file a tax return for
each taxation year in which it owns a specified immovable property,
whether or not it has tax payable for the year.
From a tax policy perspective, this change is designed to
ensure the taxation of non-resident trusts is similar to the
taxation of non-resident corporations owning real estate in
Québec. The Taxation Act (Québec) (the
"QTA") contains a deeming rule which provides that a
corporation has an establishment in each province in which an
immovable owned by the corporation and used principally for the
purpose of earning or producing gross revenue that is rent is
situated. In the case of partnerships, the Budget contains a
look-through rule to affect a similar result.
These amendments will apply to a taxation year ending on or
after March 20, 2012.
Migration of non-resident inter vivos trusts
The QTA will be amended to stipulate that a non-resident
inter vivos trust that becomes a resident of Canada will
be deemed to have disposed of its specified immovable properties
prior to becoming a resident of Canada.
The Budget states that non-resident trusts attempt to avoid
Québec taxation by migrating to another province in Canada
prior to a sale of real estate situated in Québec. More
particularly, such trusts use migration as a means to avoid double
taxation1 and clearance certificate requirements. As a
result of the announced changes, Québec tax will now be
payable on inherent gains and recapture on specified immovable
properties at the time the specified trust migrates to Canada.
Accordingly, migration is no longer an effective solution to avoid
Additionally, a Québec compliance certificate (the
Québec equivalent to a federal section 116 certificate)
containing prescribed information will now be required prior to
disposition by an inter vivos trust that began to reside
in Canada at a time when it owned a specified immovable property.
If such a certificate is not obtained, the purchaser may be liable
for withholding tax amounting to 12% of the purchase price (subject
to a reasonable enquiry exception). Thus, a purchaser of an
immovable in Québec from a trust may wish to request a
representation not only that the trust is resident in Canada at the
time of sale, but that it has been resident in Canada at all times
since it owned the property.
These changes will apply to migrations occurring on or after
March 20, 2012.
1. Non-resident trusts disposing of immovables in
Québec are subject to federal tax at a rate of 29% plus 48%
surtax, as well as Québec taxation.
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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