All About Estates

Making it personal

It’s not unusual for parents during their lifetime to lend money to children. In many cases, the loans do not bear interest and have no set repayment terms. Sometimes those kids even move away and when that happens the loan receivable by the parent becomes a foreign asset that may be subject to the foreign reporting rules and disclosures of Form T1135 – or do they?

For purposes of the reporting rules “specified foreign property” includes a debt owing to a resident from a non-resident; however, personal-use property (PUP) is not considered specified foreign property therefore excluded from the foreign reporting rules and disclosures of Form T1135. The Canada Revenue Agency (CRA) was recently asked in a technical interpretation whether a non-interest bearing loan of more than $100,001 made by a Canadian resident parent to a non-resident child would be personal-use property.

The CRA has always considered that to qualify as PUP the property must be owned and actually used primarily for the personal use or enjoyment of the taxpayer or a related person. In their view, a debt is not normally used or enjoyed and would normally only qualify as PUP if the debt arose from the disposition of a property which itself was PUP.

Trustees for estates with loans receivable from non-residents may wish to review the loan details and make sure the taxpayer is onside the foreign reporting rules and avoid costly penalties.

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: