Canadian Federal Budget

Tax-news.com

01 March 1999

The Canadian Federal Budget included several proposals to tighten up on taxation of offshore trusts and investment funds:

• non-resident trusts in respect of which a Canadian resident has transferred or lent property will be treated as resident in Canada and taxed on all its undistributed income, with some exceptions. This measure is aimed at the spread of 'purpose' trusts.
• Canadian resident beneficiaries will no longer be able to receive distributions out of the accumulated untaxed surplus of a non-resident trust without incurring a tax liability.
• existing rules requiring Canadian residents to self-assess on the deemed income from holdings in offshore investment funds are not being honoured; in future there will be an annual tax on residents' pro-rata share of all undistributed income of a foreign-based investment fund. This brings the treatment of individuals into line with the treatment of 'controlled foreign affiliates' of Canadian corporations.

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