Many immigrants to Canada will ultimately inherit substantial wealth from family members who did not follow them here.

Usually, those new Canadians are not aware of the Canadian income tax implications of those future inheritances and the fact that careful planning in that regard can often reap rewards, in terms of savings in future Canadian taxes, that far exceed any related costs.

Firstly, the good news: inheritances, whether from non-resident relatives or from Canadians are never taxable income.

However, the income and capital gains earned from such inherited assets (whether in their original form, or reinvested in other assets) will be subject to tax in Canada. Canadian residents are subject to tax on their world income from all sources. This will be the case even if such income is not remitted to Canada.

Nevertheless, there is one perfectly legal way in which taxability on such income may be avoided. That is through the use of a non-resident trust (generally established in a zero tax jurisdiction). With proper planning, this will allow Canadian tax on any related income and capital gains to be legally avoided even if the income produced is remitted to Canada.

Many immigrants to Canada have heard of the use of such an offshore trust in connection with sheltering offshore investment income earned during the first sixty months of residency-that is often called an “immigrant trust”. As a result of recent amendments, this is no longer available. However, what is envisioned here is often called an “inheritance trust”. Though far less known, it is actually a much more valuable tax planning tool than an immigrant trust ever was because it usefulness is not limited to 60 months. Rather, it can keep saving the Canadian beneficiaries tax for many generations.

The key here is that no Canadian resident can contribute property to the trust. If one does, then the trust will be treated as a Canadian resident and subject to Canadian tax. Accordingly, it is essential that the trust is formed pursuant to the will of the deceased family member-that is where the advanced planning comes in. If the Canadian beneficiary inherits the property and then contributes that property to the trust that will not work-the trust would be subject to Canadian tax and the Canadian contributor would be jointly liable for any tax.

In accordance with Circular 230 Disclosure