Changes to Canadian Immigration and Immigrant Trust Exemption


Canadian Immigration

In the February 2014 Budget the Canadian Government made the unexpected announcement that it would terminate the investor visa scheme that has been in place since 1986. The scheme has been used by many Chinese immigrants to Canada over the years, with at present an estimated 45,000 Chinese applicants in the queue. The application will now be ‘eliminated’ and the fees returned to the applicants.

The scheme was open to immigrants with a net value of at least C$1.6million (approximately €1million) who lent the Canadian government C$800,000 for five years interest free. The scheme proved to be extremely popular and in 2012 applications were frozen to allow the immigration to attempt to clear the already significant backlog. The Canadian Government considered the scheme significantly undervalued Canadian residence.

A similar scheme in Quebec continues to accept applications but it is capped at 1,200 applications from any one country and a total number of 1,750 applicants a year.

The economic migration scheme for entrepreneurs has also been scrapped at the same time with approximately 65,000 applications outstanding, of which about 45,000 of the applicants were from China.

We understand that since the schemes were introduced about 185,000 immigrants have moved to Canada.

Canadian Non-Resident Trust Exemption also known as ‘Immigrant Trust Exemption’

A trust that was non-resident in Canada would be deemed a Canadian resident trust if there is –

• Either a resident contributor, or

• A resident beneficiary, in broad terms an individual resident in Canada providing that the trust has or had a  connected contributor ie an individual who had certain defined connections with Canada and contributed or is deemed to have contributed to the trust.

An exemption to the general rule allowed contributors, who had not been resident in Canada for more than 60months, to pay into the trust foreign source income. This was part of the government policy and permitted new immigrants to receive into the trust foreign source income free of Canadian tax for up to 5 years.

The Canadian government was concerned at the fairness and tax neutrality of a scheme that was not available to Canadian residents. Such residents who received foreign source income through a Canadian resident trust would be subject to Canadian tax.  To address this concern the Canadian government, in the February Budget announced the ending of this exemption.

From now on when a Canadian resident makes a contribution to a non-resident trust, the trust is immediately deemed to be Canadian resident, from the start of that tax year, ie the 1st January.

There will be some relief from taxation of capital gains; the revaluing of trust property to the fair market value is permitted, though certain Canadian property is excepted.

These rules will apply to trusts that have their tax year end on or after 11 February 2014. If contributions are made after this date then the trust will become taxable from 1 January 2014. However, if no contributions are made after 11 February 2014 then the rules will apply to the trust from 1 January 2015. The position of existing trusts under this scheme should be reviewed and, in the case of a trust which will become taxable in 2015, careful consideration should be given as to whether the trust should continue or be wound up.