All About Estates

Definition of a personal trust

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.

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com