In tabling the 2012 Budget, the Québec Minister of
Finance Raymond Bachand announced three measures regarding the
taxation of trusts.
The first measure affects all inter vivos trusts. Following the
budget measures, inter vivos trusts will no longer enjoy a reduced
tax rate on their taxable income for Québec tax purposes.
The Québec government has increased to 24% (from 20%) the
tax rate applicable to inter vivos trusts. Before the
introduction of this measure, the tax rate of an inter vivos trust
varied between 20% and 24% depending on the amount of taxable
income. With this increase, the Québec government has
harmonized its rate with those of other provinces.
Property income derived from the rental of immovable properties
located in Québec by a trust that is not a resident of
The second measure is a new tax on the income derived from the
rental of immovable properties located in Québec and owned
by an inter vivos trust that is not resident in Canada. A tax of
5.3% of net rental income will be payable by such trusts. Moreover,
this rental income shall be computed separately from its other
sources of income. These trusts will also be required to file an
income tax return to the Québec Revenue Agency for each
taxation year in which it owns a rental property in Québec,
whether or not a tax liability arises for the year.
Deemed disposition of property by a trust that is not resident
Furthermore, an inter vivos trust that becomes a resident of
Canada after March 19, 2012 will be deemed to dispose, immediately
before that time, of each of its immovable properties located in
Québec, used primarily for the purpose of earning rental
property income. The proceeds of disposition will be equal to its
fair market at that time. The trust will be liable for
Québec tax on the capital gain and the recapture of
depreciation that may arise as a consequence of such deemed
disposition. Concurrently, the trust will be deemed to acquire the
immovable at a cost equal to the proceeds of disposition.
Finally, such a trust must now obtain a newly created compliance
certificate from the Québec Revenue Agency before disposing
of any immovable property located in Québec. Any purchaser
of such property must obtain a copy of the certificate or
demonstrate that he conducted a reasonable inquiry to ensure that
the seller was not an inter vivos trust that began to reside in
Canada after March 19, 2012. Failure to obtain such a certificate
will render the purchaser liable for the trust's tax liability
arising from the disposition, which can amount to a maximum of 12%
of the purchase price.
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