Written on November 25, 2015 – 7:00 am | by Derek de Gannes
The Canada Revenue Agency (CRA) was asked whether voluntary contributions of capital to a Trust by its beneficiaries would cause the Trust to lose its status as a Personal Trust.
The October issue of Video Tax News reminds us of a number of favourable rules in the Income Tax Act (Canada) that rely on the definition of a Personal Trust such as:
– the definition of Qualifying Small Business Corporation Shares (Subsection 110.6(1)) generally restricts their owners to individuals and Personal Trusts,
– an interest in a Personal Trust is not typically deemed disposed of on cessation of Canadian residency,
– trusts, other than Personal Trusts, cannot access the principal residence exemption, and
– property of a Personal Trust resident in Canada can commonly roll out to Canadian-resident beneficiaries at cost for income tax purposes
The CRA confirmed in their response that the Trust would in fact lose its preferred tax status as a Personal Trust.
Caution is stongly suggested when considering contributions by beneficiaries to a Personal Trust.