Reporting Requirements For Non-Resident Trusts – Toronto Tax Lawyer Analysis

Introduction - Non-Resident Trusts Canadian Tax Reporting Requirements

The Canada Revenue Agency continues to bolster reporting requirements for foreign assets or offshore income and the penalties associated with failure to file tax returns or information returns can be onerous. Trusts are an extremely effective way to distribute income among several beneficiaries in the most tax optimal way, and setting the trust up to be non-resident for Canadian tax purposes can serve to further limit their Canadian tax liability. However, although non-resident trusts are prima facie not subject to domestic Canadian income tax, the Canadian Tax Act deems otherwise non-resident trusts to be Canadian resident in a broad set of circumstances, thus making them subject to full Canadian taxation. In order to gather information about non-resident trusts, the Income Tax Act requires resident Canadian taxpayers to file Form T1141 with Revenue Canada if they are sufficiently connected to a