Tax memo: Immigration trusts: Tax planning for new Canadians

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Memo No. 2013-05

Individuals resident in Canada are subject to Canadian income tax on worldwide income. However, by setting up and transferring assets to an immigration trust, an individual who immigrates to Canada can avoid Canadian tax on income generated by those assets, for up to five years.

An immigration trust may be set up either before an immigrant becomes a Canadian resident or within 60 months after. The trust must be a non-resident of Canada, which means that:

• the trust must be settled in a non-resident jurisdiction; and
• control of the trust must be in the hands of a non-resident.

This generally requires that the trustees reside outside of Canada. For most immigration trusts, the trustee is a financial institution in a low-tax country.

In most cases, immigration trusts are discretionary. While typically the immigrant would be the capital beneficiary, other beneficiaries could include the immigrant’s spouse and children.

If the individual transfers his or her income-producing assets to an immigration trust, the income and capital gains generated by those assets can be exempt from Canadian income tax for up to 60 months after he or she becomes resident in Canada.

The tax exemption will apply to income and capital gains, other than capital gains on taxable Canadian property (e.g., real estate situated in Canada; both capital property and non-capital property used in carrying on a business in Canada). The tax-free accumulations are added to the trust’s capital, and the capital can later be distributed to Canadian beneficiaries without Canadian tax.