Canada: Planning Using Principal Residence Trusts For Immigrants To Canada

As many of our readers know, the Canadian Income Tax Act (the "Act") provides for an unlimited exemption from the imposition of Canadian income tax on the gains resulting from a disposition of a "principal residence". Access to the principal residence exemption can be valuable, especially in cities (e.g. Vancouver, Toronto, Calgary) where residential properties have enjoyed robust appreciation.

Non-residents of Canada are subject to Canadian taxation on the disposition of Canadian real estate, but a non-resident owner cannot claim a principal residence exemption. This is because the capital gain belongs to the owner but the principal residence exemption is only available to Canadian residents.

A trust, however, can own a residence. If a trust disposes of a principal residence, any gain belongs to the trust. Canadian resident trusts have their own principal residence exemption. As long as the trust is resident in Canada, access to the principal residence exemption does not require that the trust's settlor or beneficiaries be Canadian residents. Rather, the requirement is that the residence be "ordinarily inhabited" in each of the calendar years ending in the year for which the exemption is claimed by a “specified beneficiary” of the trust.1 But it is the trust itself that claims the principal residence exemption.

Is it possible to ordinarily inhabit a Canadian residence without being a resident of Canada for Canadian tax purposes? Absent access to a tax treaty with residency tiebreaker rules, the answer would probably be no. Where there is a treaty with tiebreaker rules and a home is available to the individual in both countries, it will be necessary to try and determine the individual's "centre of vital interests". This would include personal interests and economic interests. If an individual's economic interests are in one country but the individual's personal interests are in another country and it is not possible to determine his or her centre of vital interests, this would then require moving on to the next tiebreaker rule in the applicable treaty. Assuming, for example, an individual has an "habitual abode" in both Hong Kong and Canada, the next tiebreaker rule in the Hong Kong – Canada Treaty would be the country where the individual has a right of abode or of which he is a national. As a further example, if an individual has an "habitual abode" in both Canada and China, the next tiebreaker rule in the Canada – China Treaty would be the country of which the individual is a national.

Regarding residential properties for immigrants, it is not uncommon for a Hong Kong or China resident father to buy a Vancouver home in which his spouse and/or children reside while father, except for periodic visits, remains in Asia where his economic interest lies. Father might take the position that he is not resident in Canada for income tax purposes. In this case, no principal residence exemption would be available on the disposition of the residence because the owner (father) is not a Canadian resident taxpayer.

Instead, father's spouse could purchase the residence and the principal residence exemption would be available for each year as long as the spouse remained a Canadian resident and the residence was ordinarily inhabited in the years in respect of which the exemption was being claimed by her or a child.

But the spouse might not remain a Canadian resident throughout the ownership period, in which case the principal residence exemption would not be available for those years. As earlier mentioned, it is not unusual with immigrant families to have one spouse, say, the father, to be an "astronaut" with the result that from time to time some family members are Canadian residents whereas others are not. As the children get older, attend university (perhaps outside Canada), commence working and become independent, the spouse might return to Asia to join father while one or more adult children continue to live in the residence.

Often at the time the residence is purchased, the family simply doesn’t know where the various family members are going to be living 5, 10 or 15 years in the future. An advantage of having a Canadian resident trust own the residence is that the owner will be the trust which will remain resident in Canada for purposes of the principal residence exemption regardless of where the beneficiaries reside from time to time. Another advantage may be the fact that there could be multiple beneficiaries that can potentially satisfy the “ordinarily inhabited” test in various years; i.e. some in some years and others in other years. "Ordinarily inhabited" is a question of fact, but it can be for only part of the year. This is also one of the reasons that Canadian resident parents often put cottages in family trusts.

One has to be careful to ensure that the residency of the trust is in Canada. Formerly, the Thibodeau2 case suggested that a trust would be resident were the majority of the trustees resided. But the Saint Michael Trust Corp.3 case held that a trust is resident where effective management and control lies. So while the trust would have Canadian resident trustees, it is now important to ensure that effective management and control lies with them. Amongst other things, there should be a Canadian bank account where the Canadian resident trustees have signing authority which should be used to pay property taxes, maintenance, gardeners, renovations etc. This is not dissimilar to the steps that one would take to establish where the mind and management of a company lies.

Of course, one should be mindful that planning with Canadian resident trusts to hold principal residences should not be attempted if the settlor, trustee(s) or beneficiaries are US citizens or residents. This could lead to significant US reporting and tax complications that could scuttle any benefits.


1. See paragraph (a.1) of the definition of principal residence in section 54 of the Act. A specified beneficiary is defined in paragraph (c.1) as someone who, in the calendar year ending in the year is beneficially interested in the trust and who ordinarily inhabited the housing unit or has a spouse or common-law partner, former spouse or common-law partner or child who ordinarily inhabited the housing unit. “”Beneficially interested” is defined very broadly in subsection 248(25) as including any person that has any right (whether immediate or future, whether absolute or contingent or whether conditional on our subject to the exercise of any discretion to receive any of the income or capital of the particular trust either directly from the particular trust or indirectly through one or more trusts or partnerships”. CRA has said that a life tenant who has the right to occupy a property but no right to income or capital would be as specified beneficiary (see IT9803755)

2. 78 D.T.C. 6376

3. 2012 SCC 14

Moodys Gartner Tax Law is only about tax. It is not an add-on service, it is our singular focus. Our Canadian and US lawyers and Chartered Accountants work together to develop effective tax strategies that get results, for individuals and corporate clients with interests in Canada, the US or both. Our strengths lie in Canadian and US cross-border tax advisory services, estateplanning, and tax litigation/dispute resolution. We identify areas of risk and opportunity, and create plans that yield the right balance of protection, optimization and compliance for each of our clients' special circumstances.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
19 Dec 2017, Webinar, Calgary, Canada

By December 19, 2017, the world should know whether or not the US was successful in implementing landmark and historic tax reforms – the largest and most impactful such reforms since 1986. These reforms appear to touch virtually every American individual and business, and will ultimately affect many Canadian individuals and businesses directly or indirectly as well.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions