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- Title
Canadian Taxation of Non-Resident Trusts: A Critical Review of Section 94 of the Income Tax Act.
- Authors
Roth, Elie
- Abstract
Under recent amendments to the rules in section 94 of the Income Tax Act (Canada) governing the taxation of non-resident trusts, if a Canadian resident contributes property to a non-resident trust, the contributor, the non-resident trust, and certain Canadian-resident beneficiaries of the trust may become jointly and severally liable to pay Canadian tax on the worldwide income of the trust, which will be deemed to be a resident of Canada for income tax purposes. This article provides a critical review of the proposed amendments, which are considered on the basis of domestic and international legal and tax policy principles, and assesses the structural approach adopted in the legislation on the basis of a comparative analysis of the provisions with the US grantor trust rules in section 679 of the Internal Revenue Code and the Treasury regulations thereunder. The article suggests that two fundamental aspects of the approach adopted in amending the provisions governing the taxation of non-resident trusts are inappropriate and should be reconsidered. The first of these is that the rules may now apply even if a foreign trust has no Canadian-resident beneficiaries. The second is that a trust subject to the application of the provisions will be deemed to be resident in Canada for income tax purposes and liable to tax in Canada on its worldwide income. Before the proposed amendments, the assertion of the deemed residence of a trust subject to the provisions was supported by a requisite precondition that a trust have at least one resident beneficiary in order to attract application of the anti-avoidance rule, a requirement that was appropriate in that the beneficial ownership of trust property implies the continuing nexus justifying taxation by the jurisdiction of residence of the taxpayers to whose benefit the accumulation of income derived from the trust property may ultimately be considered to accrue. As a result of the proposed amendments, an entity may now be ...
- Subjects
CANADA; TAX laws; INCOME tax; TAX accounting -- Law &; legislation; DOUBLE taxation
- Publication
Canadian Tax Journal / Revue Fiscale Canadienne, 2004, Vol 52, Issue 2, p329
- ISSN
0008-5111
- Publication type
Article