As a general rule, Canadian residents are subject to Canadian income tax on their worldwide incomes. This is true regardless of whether or not such income is remitted to Canada.

In order to prevent Canadians from deferring or avoiding tax on investment income by forming offshore trusts, there are complex rules in section 94 of the Income Tax Act (“the Act”) that generally come into play whenever a Canadian resident makes a “contribution” to an offshore trust. In general terms, such trusts are deemed to be resident in Canada for most purposes of the Act, and the Canadian “contributor” is jointly liable with the trust for any Canadian tax liability.

However, up until the Federal Budget that was released in February of this year, there was an exception to the application of these rules during the first 60 months that the “contributor” was resident in Canada. This meant that income and capital gains earned and accrued during that period could be effectively sheltered from the Canadian tax net. Such trusts were usually called “Immigrant Trusts”.

Now, without any warning, that long-standing exemption has been withdrawn. In addition, so far there has not been any “grandfathering” for pre-existing trusts, except to the end of this year. This means that an immigrant who came to Canada at the beginning of 2014, expecting a 60 month tax holiday, will, at best, get less than a year.

However, as indicated in my Blog “Canada – A Tax Friendly Destination For Wealthy Immigrants” posted on TaxConnections May 16, 2014, there are still many reasons why Canada is still a tax-friendly jurisdiction for wealthy immigrants! In many cases, even without the Immigrant Trust, there are still techniques that will allow Canadian tax on offshore income to be avoided.

In accordance with Circular 230 Disclosure