Canada: Recent Changes In Canada In The Areas Of Trusts And Estates Law


This article discusses various types of trust planning currently and historically used by practitioners in Canada for their Canadian resident clients. Additionally, it explores the recent legislative changes to the Canadian trust and taxation laws that impact those types of planning, and the benefits previously associated with those structures. These changes include elimination of preferential tax treatment of testamentary as well as immigration trusts. Considerations of how to deal with these changes are also explored. Finally, an analysis of tax amnesty in Canada, known as the Voluntary Disclosure Program, is discussed.

Executive Summary

Canadian practitioners frequently use trusts to execute tax, personal succession, and business succession planning strategies for their clients. While the laws applicable to the tax and other benefits derived from trust planning at any given point in time will continue to be subject to change based on the government's interest in controlling or curtailing such benefits, trusts continue to have an important and robust role in Canada.

There are a variety of planning strategies, both inter vivos and testamentary in nature, that are used widely. Over the last couple of years, however, there have been changes to the Canadian Income Tax Act (the 'ITA'),1 and developing case law that alters the effectiveness of the use of trusts in certain circumstances.

The two types of trusts, inter vivos and testamentary, are currently subject to different tax regimes in Canada. Until the imposition of the proposed amendments of 2014 Federal Budget to the ITA, testamentary trusts are subject to graduated tax rates, whereas inter vivos trusts are subject to tax at the highest marginal rate. A great deal of testamentary trust planning revolved around the establishment of multiple testamentary trusts created under a Will so that these graduated rates could be enhanced over multiple beneficiaries. The tax-related benefits to this type of planning have been eliminated.

The Canadian rules applying to the taxation of offshore trusts went through multiple iterations starting with the earlier draft revisions in 1999 and becoming law, in 2013 with retroactive effect (subject to limited grandfathering) to taxation years beginning in 2007. These rules continued to allow for certain tax benefits for new immigrants when properly establishing trusts that were commonly referred to as 'immigration trusts'. The 2014 Federal Budget will also eliminate the tax benefits to this type of planning. There are other types of offshore planning that are still available with the right fact pattern that can allow Canadian resident beneficiaries of offshore trusts to enjoy the benefit of trusts that accumulate income offshore tax free, with the tax-paid capital being available for the Canadian resident beneficiaries.

Tax amnesty, referred to in Canada as our Voluntary Disclosure Program (VDP), continues to be very important for Canadian practitioners to understand and to use in appropriate circumstances for their clients. The manner in which the VDP is applied and the concessions made by the government with respect to interest and penalties arising from making disclosures are important to consider along with the consequences of such disclosures. The VDP is another example of Canada's legislative attitude towards finding a balance between fair taxation and providing for tax benefits and breaks in certain circumstances.

In summary, this article will discuss the various types of trust planning currently being used by practitioners for their clients resident in Canada and also the planning with offshore trusts for the benefit of Canadians. It will also review the recent legislative changes that have an impact on the tax or other benefits previously associated with that type of planning. Finally, an analysis of the Canadian VDP will be reviewed.

1.How Robust is Trust Planning in the Region?


All across Canada, both inter vivos and testamentary trusts are widely used for many purposes. They provide an effective vehicle to reduce income tax and also provincial probate fees on death. In Ontario, with the recent changes to the provinces Estate Administration Tax Act, 1998 footnote and its more significant and onerous reporting obligations, we foresee the use of inter vivos trusts as Will substitutes increasing in importance.

There are also changes to the taxation of testamentary trusts and estates which will impact the use of multiple testamentary trusts for the purposes of income splitting.

This section of the article will discuss the various types of trusts employed throughout Canada, the use of these trusts in estate and tax planning, and the recent changes to the taxation of trusts relevant to an international audience.

(b) Alter-Ego Trusts and Joint Spousal or Common Law Trusts


These types of trusts are becoming increasingly popular as an estate planning tool, as they allow taxpayers to transfer property into a trust on a tax-deferred 'rollover' basis, while allowing the taxpayer to retain an interest in the property. These types of trusts also provide planning opportunities with respect to addressing incapacity, reducing or eliminating probate, protecting against claims under dependants' relief legislation, confidentiality, and continuity of management.

(ii)Conditions to be Met

For both alter ego and joint spousal trusts, the transferor of the property to the trust must be at least 65 years old at the time of the trust's creation. The transferor, in the case of the alter ego trust, or the transferor and/or his or her spouse3 or common law4 partner, in the case of the joint spousal trust, must be entitled to receive all of the trust's income while alive. No person, with the exception of the transferor or his or her spouse or partner, as the case may be, can receive or otherwise obtain the use of any of the income or capital of the trust before the transferor's death or, in the case of the joint spousal trust, the transferor's spouse's death. It has been questioned whether these conditions must only be met at the time the trust is established or if such conditions must be maintained throughout the trust's existence.5 Moreover, it is not clear whether two spouses or partners can contribute to the same joint spousal trust.6

On the death of the transferor or his or her spouse, as the case may be, any person can benefit from the trust. It could be required that the trust be wound up and the trust assets distributed as per the terms of the trust deed. Alternatively, the trust deed could provide that the trust is to continue after the death of the transferor or his or her spouse, as the case may be.7 Since it is not a testamentary trust however, any trusts for the remainder beneficiaries will not be entitled to graduated rates of taxation, otherwise applicable, but as will be discussed below, the change to the taxation of testamentary trust status will likely bolster the efficacy and popularity of these trusts.

(iii)Exception to the 21-Year Rule

The ITA provides that most personal trusts are deemed to dispose of their capital assets on the trust's 21st anniversary and every 21 years thereafter bringing all accrued capital gains into income.8 Income tax must then be paid. Without an actual disposition, this is often a problem as the trust may lack sufficient liquid assets to pay any tax owing. Often, to defer the application of tax, the assets of the trust are rolled out to the capital beneficiaries prior to the 21st anniversary of the trust.9 The 21-year rule does not apply to alter ego and joint spousal trusts.10 A deemed disposition of the trust's assets will, however, occur on the death of the transferor, in the case of an alter ego trust, and on the death of the last to die of the transferor and his or her spouse or partner, in the case of a joint spousal trust.11 Should the trust continue beyond either of these two triggering events, there will be a deemed disposition of the trust's assets every 21 years thereafter.

An election can be made by an alter ego trust12 to have the 21-year rule apply to the trust.13 If such an election is made, regardless of when the transferor dies, the trust will be deemed to dispose of its assets for their then fair market value on its 21st anniversary. If this election is made, assets cannot be transferred to the trust on a tax-deferred basis.14

(iv)Selected Benefits

There are a number of benefits to using an alter ego or joint spousal trust, including: (i) minimization of professional fees as a probate application may no longer be required on death; (ii) minimization of estate litigation; (iii) possible asset protection; and (iv) less chance of assets being lost or forgotten about on death as they will have been transferred to the trust during the taxpayer's lifetime. While these are all important reasons to set up an alter ego or joint spousal trust, the most common reasons for the establishment of such trusts include: (i) the minimization of estate administration tax payable on death; (ii) confidentiality of the distribution of assets on death and the value of wealth on death; (iii) prompt distribution of assets on death; (iv) efficient and effective method to deal with international assets; (v) effective management of assets during a subsequent mental incapacity; and (vi) opportunities for interprovincial tax planning. The tax planning benefits associated with these types of trusts will be discussed further below.

(v)Inter-Provincial Trust Planning within Canada

Subsections 104(13.1) and 104(13.2) of the ITA allow an election to have the income of an alter ego or joint spousal trust taxed in the trust and not in the hands of its beneficiaries.15 In this regard, the tax rates of a low tax province can be applied.16

For inter-provincial tax planning to succeed, subsection 75(2) of the ITA cannot apply to the alter ego or joint spousal trust at any time. Subsection 75(2) of the ITA is an income attribution rule. It applies whenever a person transfers property to a trust on the condition that (i) the property may revert to the person 17; (ii) the person may determine who can receive the property; or (iii) the property cannot be dealt with without the person's consent or must be dealt with only on the instructions of the person. If the rule applies, all income, gains, and losses of the trust will be attributed to the transferor. The rule ceases to apply upon the death of the taxpayer or if the taxpayer ceases to be a resident of Canada for income tax purposes.

Not surprisingly, subsection 75(2) will apply to most alter ego and joint spousal trusts: the settler will be a capital beneficiary and/or will have the power to control the trust property. As a consequence, all of the income and gains will be attributed to the transferor.

Avoiding the application of subsection 75(2) requires that the transferor not be a capital beneficiary. The transferor also ought not to be the sole trustee or a trustee with veto power over the trustee decisions. Finally, the transferor cannot have the power to revoke the trust.

It is also possible to avoid the application of the rule by making a loan of assets to the trust on an interest-free basis.18

To ensure that the residency of the trust is in a lowtax province, a trustee in the low-tax province would have to be appointed and the mind and management of the trust would have to be maintained in the low-tax province.19 As such, the transferor would need to appreciate the control he or she would have to relinquish to the trustee.20 Typically, the use of a trustee in a low-tax province will lead to additional costs.

Case law suggests that there is nothing inherently abusive about shifting income amongst the provinces or 'rate shopping'.21

(c)Testamentary Trusts


A testamentary trust is a trust that arises on and as a consequence of the death of an individual.22 Currently, an estate and other testamentary trusts are taxed at graduated rated in the same way as an individual. This has, historically, provided testators with the ability to plan for income splitting upon their death between the estate and its beneficiaries. This was a popular and widely used estate planning tool, until recently when the Canada Revenue Agency (CRA) proposed to eliminate the favourable tax treatment of testamentary trusts.

(ii)Budget Proposal Change

On 21 March 2013, the federal government tabled its 2013 budget. The government announced that it would consult on eliminating the tax benefit currently enjoyed by testamentary trusts and estates. The federal government released its consultation paper to solicit public comment on possible measures to deal with a perceived unfairness in taxing testamentary trusts and estates in a different manner than inter vivos trusts on 3 June 2013.23 The government was concerned that the use of testamentary trusts or the delay in administering estates were provoked by a wish to reduce income tax payable. Consequently, the government suggested that testamentary trusts be taxed at the same top tax rate as inter vivos trusts. In addition, the government proposed to tax estates at the highest graduated tax rate applicable to individuals as of the 36th month anniversary of the date of death.

In the 2014 Federal Budget, the government further announced that it would go ahead with the transition discussed above and eliminate the graduated rates afforded to testamentary trusts. There was one exception provided for trusts established for the benefit of disabled beneficiaries. Therefore, it is possible that the use of inter vivos trusts may increase, since the tax benefits currently afforded to testamentary trusts are not always the main motivation for their creation. As a result, individuals may soon consider establishing such trusts during their lifetime as opposed to waiting until their death if the tax treatment is the same or comparable. The confidentiality offered by trusts is appealing to many individuals. The distribution of assets from a trust can generally occur more quickly than if an estate requires probate before its assets can be distributed to the beneficiaries. Further, an inter vivos trust can provide the same non-tax benefits enjoyed by testamentary trusts such as protecting children from a previous relationship in the situation of a blended family24 and safeguarding beneficiaries who are not financially sophisticated or have substance abuse problems. In addition, in Ontario, such trusts would have the additional benefit of moving the assets out of the individual's estate and, consequently, reducing the amount of probate fees payable.

(d)Estate Freezing25

An estate freeze is a reorganization in which the value an investment, such as the common shares of a corporation, is frozen at their fair market value at the date of the freeze. An estate freeze can be done with corporations, partnerships, or different forms of ownership, such as an investment portfolio. Typically, the freezor exchanges common growth shares for fixed value preferred shares of equal value, with the next generation acquiring new common growth shares. The idea is to freeze the value of the current generation's assets and shift the future growth in value elsewhere.

Estate freezes are particularly effective when the value of the assets are expected to increase significantly before the individual's death, and when the children are expected to hold the shares after the death of the freezor. There are many factors to consider when determining whether to implement an estate freeze and what approach to take: the age, lifestyle and health of the owner, the nature and size of the business, the future growth prospects of the business, current and future market conditions, interests of other family members or third parties, cash flow, sufficiency of assets and standard of living, other assets and income available to the owner, amount of accrued income tax liability and exposure to creditors.

Estate freezing is a useful tool to accomplish a variety of estate planning objectives. Trusts are also an integral part of effecting an estate freeze in a manner that is conducive to the tax planning as well as familial and other objectives.

(i)Benefits of Estate Freezes

Generally speaking, any accrued capital gains are taxable at death.26 An estate freeze does not defer capital gains that have accrued up until the point of the freeze; however, it does reduce the value of the freezor's capital property that will be subject to the deemed disposition. Therefore, the amount to be taxed at death will be limited to the freeze value and any subsequent increase in value of the frozen assets will accrue to the next generation. Further, estate freezes allow for shifting value in a corporation (for example) while still maintaining control and involvement in the business.

An estate freeze also assists in calculating and fixing the tax liability to be incurred when the freezer dies. This provides certainty for tax planning in the determination of the tax liability and the planning involved in satisfying such liability.

Estate freezes provide the opportunity, where applicable, to apply and multiply the capital gains deduction. At present, individuals are permitted a capital gains deduction27 of $750,000 realized on qualified small business corporation shares or qualified farm properties. The manner in which this deduction can be multiplied will depend on the structures involved.

Income splitting is another important benefit of an estate freeze. The opportunity to split income among family members is accomplished primarily through the distribution of dividends among family members with more favourable marginal rates, or those living in provinces with lower rates, in general.

(e) Non-Resident Trusts and Foreign Investment Entities28

(i) Changes to Method of Taxing an Non- Resident Trust and Resident Contributors

Prior to 2009, a trust was regarded as being a resident of the jurisdiction in which the majority of the trustees are resident.29 However, in Garron Family Trust v The Queen ('Garron'),30 the Tax Court of Canada, per Woods, J. (also confirmed by the Supreme Court of Canada), applied a test similar to the common law residency test for corporations and held that a trust is resident where its central management and control actually abides. As a result, ensuring that a trust is non-resident under the common law is no longer as simple as it once was. A determination of the trust's central management and control must be made before considering the Non-Resident Trust (NRT) rules since a trust settled in a foreign jurisdiction may be resident in Canada pursuant to Canadian common law.

Canada has complex rules dealing with preventing the avoidance or deferral of tax by Canadian residents through the use of planning techniques involving offshore trusts. After well over a decade of debate, consultation, and consideration, on 26 June 2013, Bill C-48 received royal assent. Bill C-48 is an omnibus tax bill that includes, among other measures, revised rules for the taxation of NRT in Canada (collectively, the 'NRT Rules'). Retroactive to 1 January 2007, the NRT Rules amend section 94 of the ITA and established measures aimed at restricting the use of offshore or NRTs as a means of limiting or deferring the payment of income taxes in Canada. Under these rules, there continued to be an exception for trusts where the Canadian resident contributor to the trust had been a resident of Canada for less than 60 months in the aggregate in their lifetime. This 60-month tax holiday was commonly referred to as the 'immigration trust' exception. It will be discussed further after reviewing the application of the rules in a more general fashion but in general, the definitions regarding the taxation of NRT's in the 2014 Federal Budget amend the definitions of 'connected contributor' and 'resident contributor' in order to eliminate the use of immigration trusts.

Generally, where a trust is not resident in Canada, in accordance with the Garron principles, newly adopted section 94 of the ITA sets out certain conditions in which an otherwise NRT would be subject to Canadian income tax. In contrast to the replaced section 94 of the ITA, there are two different tests that can result in the NRT being deemed to be resident in Canada for Canadian income tax purposes:

  • where there is a Canadian resident contributor; or
  • where there is a Canadian resident beneficiary.

In the event that there is either a resident contributor to the NRT, OR, a resident beneficiary, the NRT will be deemed to be resident in Canada and liable to tax under subsection 94(3) of the ITA.

In particular, when caught by the deeming provisions, an NRT is deemed to be resident in Canada throughout the particular taxation year for the purposes of computing its income for the particular taxation year, determining its liability for tax under Part I of the ITA and for determining the liability of a non-resident person for tax under Part XIII of the ITA.31

In addition, each person who is at any time in the particular taxation year a resident contributor to the NRT or a resident beneficiary under the NRT is jointly and severally liable with the NRT for the NRT's Canadian tax.32

(ii)Resident Contributor

A resident contributor to an NRT at any time is defined as being a person who is, at that time, both resident in Canada and a contributor to the NRT. In addition, prior to the 2014 Federal Budget, it did not include an individual (other than a trust) who had not, at that time, been resident in Canada for more than 60 months during such person's lifetime.33 This exception is being removed.

In analysing the resident contributor definition, one must look to the meaning of the word contributor since this is also a defined term. A contributor to an NRT at any time means a person who at, or before that time, has made a contribution to the NRT. Note that the definition of resident contributor requires that the person be both resident in Canada and a contributor to the NRT at a particular time, but the definition of contributor means a person who at or before that time has made a contribution. Therefore, if a person makes a contribution while a non-resident, and subsequently becomes resident, he or she will at that later time become a resident contributor.

A contributor also includes a person who has ceased to exist. The CRA agrees, however, that a person who is deceased cannot be a resident contributor, but only a contributor. The definition of contributor also contains a defined term being the word contribution. This is one of the most difficult and also fundamental aspects of the legislation. A contribution at any time to an NRT by a particular person or partnership means a transfer or loan, at that time, of property to the NRT by the particular person or partnership (other than by an arm's length transfer).34

It should be noted that under the special provisions of subsection 94(2) of the ITA, there are at least 12 further rules which may deem a person to have transferred property in certain circumstances. The clear intent of the legislation is to address every conceivable situation under which property can be transferred from a Canadian resident person to an NRT. However, it is important to note that a loan made by a specified financial institution (ie a bank) to an NRT will not cause said institution to become a resident contributor where the loan is made on commercial terms and in the ordinary course of the institution's business.35

(iii)Resident Beneficiary

An NRT will also be liable to Canadian tax under subsection 94(3) of the ITA if, at the end of the year of the NRT, there is a resident beneficiary. The choice of the term resident beneficiary is an unfortunate one since it is a misnomer in that it means more than simply a beneficiary of the NRT who happens to be resident in Canada.

To determine whether there is a resident beneficiary at any time under a particular NRT includes a two-pronged test in that there must be both a connected contributor and a beneficiary resident in Canada (other than an exempt person36 or successor beneficiary in respect of a trust).37 The word beneficiary as used in this test is also a defined term in proposed subsection 94(1) of the ITA and it extends the meaning of beneficiary to include a person beneficially interested38 and a person who may receive income or capital of the NRT indirectly through other entities. For example, a shareholder of a corporate beneficiary can be considered a beneficiary of an NRT.

A connected contributor to an NRT means a contributor to the NRT, but excludes a person whose contribution to the NRT is made at what is called a 'non-resident time'. Previously, the definition also excluded an individual (other than a trust) who was before the particular time not resident in Canada for a total of 60 months during that person's lifetime. The reference to a person who has not resided in Canada for more than 60 months is being eliminated. As a result, in cases where there is a beneficiary resident in Canada, an otherwise NRT will be deemed to be resident in Canada where there has been a contribution by a person to the NRT otherwise than at a non-resident time of that person.

The 'non-resident time' of a person in respect of a contribution to an NRT means a time (the 'Contribution Time') at which the person made a contribution to an NRT, that is before the particular time (ie the taxation year end of the NRT) and at which the person was non-resident (or not in existence). However, such a time will qualify as a nonresident time only if the person was non-resident (or not in existence) throughout a specific period. This specific period refers, in particular, to the period that begins 60 months before the Contribution Time and ends at the earlier of 60 months after the Contribution Time and the particular time.

Subsection 94(10) of the ITA provides that a contributor will, for the purposes of the definition of connected contributor, be considered to have made the contribution at a time other than a non-resident time if the contributor becomes resident in Canada within the 60-month period after the Contribution Time.

In such a case, at the end of each of taxation year of the NRT following the contribution, there would be a connected contributor to the NRT and, where there is a resident beneficiary under the NRT, subsection 94(3) of the ITA would also apply in respect of those years to deem the NRT to be a resident of Canada.

In the case of contributions made by an individual to an estate that arose as a consequence of his or her death, the relevant period begins 18 months before the death and ends 60 months after the contribution. Thus, as long as the deceased was not resident in Canada throughout the 18-month period before the death, the contributions will be considered to have been made at a non-resident time.

Moreover, a successor beneficiary who is resident in Canada is not considered to be a beneficiary for the purposes of the definition of resident beneficiary. In order to fall within the definition of successor beneficiary, the beneficiary's interest must arise only after the death of an individual who is alive and a contributor to the NRT or on the death of a person related to the contributor (including an uncle, aunt, niece, or nephew of the contributor).39

To summarize, an NRT will be deemed to be a resident of Canada under proposed subsection 94(3) of the ITA if there is either a resident contributor to the NRT (described earlier) or a resident beneficiary under the NRT. In order to have a resident beneficiary under an NRT, there must be both a Canadian resident beneficiary under the NRT and a connected contributor. Any person who has transferred property to the NRT, including a person who has ceased to exist, will be a connected contributor to the NRT unless exempted by certain rules, including, for our purposes, because they have made the contribution during a non-resident time. There will no longer be an exemption for those individuals who have not been resident in Canada for an aggregate of 60 months.

(iv)Resident and Non-Resident Portion

Where subsection 94(3) of the ITA applies to an NRT, the NRT is deemed to be a resident of Canada for the purposes of computing its worldwide income that is not otherwise distributed to its beneficiaries or attributed to an electing contributor (further explained below).

The NRT Rules propose that an NRT's property be divided into two portions: (i) a taxable portion defined as the resident portion and (ii) a non-taxable portion defined as the non-resident portion.40

Generally speaking, the resident portion includes all property (and any property substituted for such property) acquired by the NRT by way of contribution from a connected contributor or a resident contributor. In short, contributions of property to the NRT will form part of the resident portion to the extent that they were made by current or former residents of Canada. It is also important to note that due to the application of subsection 94(10) of the ITA, if a nonresident person makes a contribution at a time which is within 60 months of becoming a resident of Canada, the property contributed will form part of the resident portion as of the contribution date.

Moreover, where the NRT acquires property, which would not form part of the resident portion (eg because a resident did not contribute said property), but in acquiring the property the NRT incurred indebtedness (eg by way of a loan, or the unpaid portion of the purchase price) to fund its acquisition, the NRT Rules apply a formula to allocate a part of the fair market value of said property to the resident portion of the NRT.

In short, the formula will allocate a part of the property to the resident portion of the NRT to the extent of the greater of:

  • the fair market value of the property multiplied by the proportion that the total fair market value of all property held in the resident portion of the NRT at the beginning of the NRT's taxation year in which the NRT acquired the property is of the total fair market value of all property held by the NRT at the beginning of the NRT's taxation year in which the NRT acquired the property; and
  • the fair market value of the property multiplied by the proportion that the total fair market value of all property held in the resident portion of the NRT at the end of the NRT's taxation year in which the NRT acquired the property is of the total fair market value of all property held by the NRT at the end of the NRT's taxation year in which the NRT acquired the property. Moreover, this amount must be determined as if the property in question was not held by the NRT at the end of that taxation year.41

In addition, when income of the NRT is not distributed to its beneficiaries, the amount of the accumulated income for the relevant taxation year will form part of the NRT's resident portion and thus, will be subject to taxation in Canada.42

The non-resident portion includes all property held by the NRT that is not part of the resident portion.43 As mentioned above, the income derived from property forming part of the non-resident portion is not subject to taxation in Canada, except to the extent that the amount represents income from sources in Canada on which the NRT would normally pay tax if it were a non-resident of Canada throughout the taxation year in question.

In contrast, the prior enacted NRT Rules required a deemed resident trust to pay Canadian income tax on all of its income, regardless of who contributed the property on which the income was earned. As a result, the NRT Rules protected resident contributors since they were no longer liable for Canadian income tax, through the mechanism of joint and several liability, on income earned from property that has no link to the specific property contributed by them.

Also, in computing the NRT's income, the NRT could have deducted certain amounts paid or payable to beneficiaries pursuant to subsection 104(6) of the ITA.44 The NRT is still also able to deduct amounts included in the income of an electing contributor (further explained below).

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Originally published in Trusts & Trustees, Vol. 21, No. 1&2, February/March 2015


1.R.S.O. 1985, c 1 (5th Supp).

2. For a more in-depth discussion, see Gail Black and Kristen Green, ''Trusts and their Taxation'' Miller Thomson on Estate Planning (Thomson Reuters 2012).

3. Includes same and opposite sex spouses.

4. Common-law partners are individuals, of the same or opposite sex, who have lived together for at least 1 year in a conjugal relationship.

5. David Stevens, Timothy G Youdan and Brian Cohen, 'Discussion of the Annotated Alter Ego Trust' (The Law Society of Upper Canada, The Annotated Alter Ego Trusts and Discretionary Trust, 5 March 2013) 2.

6. ibid 3. The authors suggest that, pursuant to a strict reading of the ITA, this is not permissible. It should be noted that others have stated that such contributions are allowed.

7. The continuation of the trust may be desirable from an income tax perspective. The rule respecting the 1-year carry back of capital losses of the deceased at death (pursuant to subsection 164(6) of the ITA) does not apply to deal with post-mortem capital losses of a trust. Instead, the loss triggered by the death of the transferor is realized by the trust and, therefore, a 3-year carry back of the loss is allowed (para 11 1(1)(b) of the ITA). The trust needs to continue after the death of the transferor to permit the use of this longer carry back period: It has been argued that a trust terminates on the death of the life tenant if the provisions of the trust provide for an outright distribution to the beneficiaries following the death of the life tenant or for the distribution of the trust property to trusts for the benefit of some or all of the beneficiaries. ME Hoffstein and Lee-Anne M Armstrong, Alter Ego Trusts and Joint Partner Trusts — Tips and Traps (December 2002).

8. Sub-s 104(4)(a) of the ITA.

9. Note that where the income attribution rule found in sub-s 75(2) of the ITA applies or has ever applied to a trust the trust is denied the opportunity to utilize this tax-deferred roll out. See ss 107(4.1) of the ITA.

10. Para 104(4)(b) of the ITA.

11. ibid ss 104(4).

12. But not a joint spousal trust.

13. Subpara 104(4)(a)(ii.1) of the ITA.

14. ibid ss 73(1).

15. Sub-s 104(13.1) of the ITA.

16. It should be noted that some provinces (eg Quebec) have provincial laws in place to prevent such tax planning.

17. Does not include reversion of property by operation of law. See CRA doc. 2002-0116535.

18. Jean Howson v The Queen, 2007 DTC 141. See Jamie Golombek, 'Alter Ego Trust Planning' (2011) 11(2) Tax for the Owner Manager 5.

19. See n 18.

20. See n 7 at 36, and Carmen Theriault, 'Alter Ego and Joint Partner Trusts' (2002) 21 ETPJ 345 at 358–359.

21. The Queen v Husky Energy Inc. 2011 ABQB 268 as affirmed by 2012 ABCA 231 and The Queen v Canada Safeway Limited 2011 ABQB as affirmed by 2012 ABCA 232.

22. S 108(1) of the ITA 'testamentary trust'.


24. A trust could be established for the benefit of children from a previous relationship so that on the death of the parent, while some of their assets will pass to their new spouse or partner, some of their assets will be kept separate and reserved for the benefit of their children from the previous relationship. Trusts, inter vivos, and testamentary are very popular for the blended family situation.

25. For a more in-depth discussion, see William Fowlis, Bryant Frydberg and Regan O'Neil, ''Trusts and their Taxation'' Miller Thomson on Estate Planning (Thomson Reuters 2012).

26. See sub-s 70(5)-(10) of the ITA.

27. See s 110.6 of the ITA.

28. For a more in-depth discussion, see John Campbell and James Fraser, ''Estate Freezing'' Miller Thomson on Estate Planning (Thomson Reuters 2012).

29. The Thibodeau Family Trusty. The Queen 78 D.T.C. 6376 (F.C.T.D.).

30. 2009 TCC 450 (T.C.C.), affirmed 2010 FCA 309, affirmed 2012 SCC 14.

31. Para 94(3)(a) of the Act

32. In order to be subject to the NRT Rules, the foreign entity must constitute a trust for Canadian tax purposes. Generally, if the foreign entity constitutes a trust within the meaning of the laws of that foreign jurisdiction, the foreign entity will be considered to be a trust for Canadian tax purposes. For a review of foreign entities as trusts for the purposes of the NRT Rules, see Guy Fortin, 'Strangers in Strange Lands: The Hidden Traps of Offshore Trusts', Report of Proceedings of Fifty-First Tax Conference, 1999 Tax Conference (Toronto: Canadian Tax Foundation, 2000) 40:1–68.

33. Sub-s 94(1) of the Act 'resident contributor', 'contributor', 'contribution'.

34. Sub-s 94(1) of the Act 'contribution'.

35. Para 94(2)(c) of the Act.

36. In short, an 'exempt person' includes persons who are exempt from tax under Part I of the Act, such as registered charities and Crown corporations.

37. Sub-s 94(1) of the Act 'resident beneficiary'.

38. Sub-s 248 (25) of the Act 'beneficially interested' and sub-s 94(1) of the Act 'beneficiary'.

39. Sub-s 94(1) of the Act 'successor beneficiary'.

40. Para 94(3)(f) of the Act and sub-s 94(1) of the Act 'resident portion' and 'non-resident portion'.

41. Sub-s 94(1) of the Act 'resident portion'.

42. Para 94(1)(d) of the Act of 'resident portion'.

43. Sub-s 94(1) of the Act 'non-resident portion'.

44. Sub-s 94(3) of the Act.

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