All About Estates

Income allocated by a US trust

The Canada Revenue Agency (CRA) was asked whether income allocated by a US trust to a resident of Canada retains its nature as a dividend.

The taxpayer was a beneficiary of a US trust established by her aunt on the aunt’s passing. In the aunt’s will the income, primarily from dividends paid by US companies, was to be paid to the taxpayer each year.

In her Canadian tax returns the taxpayer reported the amounts as other foreign income and requested an adjustment to those returns to restate the reporting as dividend income. The CRA denied the adjustment requests for reasons outlined in Canadian tax law. The taxpayer sought treaty relief to no end as the treaty had no application in the matter.

The CRA confirmed that for Canadian tax purposes, the income that the taxpayer has received is deemed to be income from an interest in a trust; it does not retain its character as dividend income. To that end the income will not benefit from the lower dividend tax rates in Canada.

Take care when reporting income from foreign sources to make sure the correct tax calculation.

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