Can a trust set up entirely overseas still be taxed in Canada?
Yes. A trust can be settled abroad, administered abroad, hold nothing here and still be deemed a resident trust, because the deeming rules do not look at where the trust sits. They look for a resident contributor, or in defined circumstances a resident beneficiary. Where that connection exists, the trust's income comes into the Canadian base. This is why the reassurance a family usually gets from the trustees, that the trust is foreign and none of this applies, is not an answer to the Canadian question at all. The facts that settle it are who put property into the trust and in what capacity, and which beneficiaries are in Canada.
Does lending money to a family trust abroad make me a contributor?
It can, and this is the trap that catches ordinary family arrangements. A loan can be a contribution for these purposes, so money advanced on family terms and thought of as repayable may supply the resident contributor that brings the whole trust inside the Canadian base. The label does not help. Calling it a loan, documenting it as a loan, even repaying it, does not necessarily undo the effect. What matters is the substance of the arrangement and the terms actually agreed, which is why the advances have to be examined as they are rather than as the family describes them. If you have lent to a trust abroad, treat the residence question as open.
Who files for a trust deemed resident in Canada under s.94?
The trust does, and that is the awkward part, because the trustees are abroad and may not accept that they have a Canadian obligation at all. Where s.94 deems the trust resident, its income is brought into the Canadian base and the trust is answerable for it, with resident contributors and resident beneficiaries exposed in defined circumstances as well. In practice the Canadian side of the family ends up driving the work: obtaining the trust's accounts, establishing the contribution history, and getting the trustees to produce records nobody has asked them for before. Settle the status question first. Filing on an unsettled status creates a position that is then hard to move.
My parents' trust is offshore and I now live in Canada, am I caught?
Possibly, and it turns on facts you may not hold. The rules reach a trust where there is a resident contributor, and in defined circumstances where there is a resident beneficiary. Your own arrival does not by itself bring the trust in, but it changes the picture, and it makes the contribution history worth establishing rather than assuming. The questions to answer are who put property into the trust, whether any of them were in Canada at the time or have since moved here, and whether anything described as a loan was in substance a contribution. Ask the trustees for the contribution history early. It is the record that decides the answer, and it gets harder to obtain as years pass.
Does s.94 apply if none of the trustees have ever been to Canada?
Trustee residence is not the test, so the honest answer is that it makes no difference to the question. A trust with foreign trustees, a foreign administration, foreign assets and a foreign governing law can still be deemed resident here, because the rules attribute residence by reference to contributors and beneficiaries rather than to the people running the trust. That is worth knowing before spending money on the wrong evidence. Trustees faced with a Canadian query often assemble minutes, resolutions and proof that decisions were taken abroad, none of which reaches the point. The record that answers it is the history of contributions and the residence of the people who made them.
What income does Canada tax if a trust is deemed resident here?
The trust's income comes into the Canadian base as the income of a resident trust, rather than only the part with a Canadian source. That is the shift families find hardest to accept, because the trust's investments may have nothing to do with Canada. The practical consequences follow from it. The trust's year has to be computed on Canadian principles, the character of each stream matters, and distributions to beneficiaries have to be looked at in that light rather than in the light of the trustee's own accounts. Where tax has already been paid elsewhere on the same income, that is a separate question, answered by the relief mechanisms and not by the residence rule.
How do I get back tax withheld in another country?
By the route that country provides, and it is rarely automatic. Where an elective return is available — on rent or pension income, for instance — filing it recomputes the tax on net income and refunds the difference. Where it is not, you file a refund claim with the withholding authority, supported by evidence of your residence and entitlement to the treaty rate. Both take time, which is why fixing the rate before payment is worth more. See withholding refund and recovery.
What does "received a distribution from a foreign trust" mean on my return?
It is asking whether the trust conferred anything on you during the year — cash, property, or the use of trust property, including rent-free occupation of a house and, in some circumstances, a loan. Answering yes brings an information return, and where the distribution includes income accumulated in earlier years the tax computation can carry an interest charge for the delay. Trust accounts showing the composition of the distribution are what keep that computation from defaulting against you. See Form 3520.
