Does it matter if your executor is a non-resident of Canada?
The answer is definitely, yes - the residence of your executor affects the residence of your estate for income tax purposes. As a result, appointing a non-resident of Canada to be the sole executor of your estate would cause your estate to be a non-resident of Canada too and trigger some potentially negative tax consequences:
• A non-resident estate would lose the preferred tax treatment for capital gains and Canadian source dividends that are flowed through to the Canadian resident beneficiaries.
• A non-resident estate may not have the potential benefit of being able to split the tax burden between the estate and its Canadian resident beneficiaries, as is often the case with a Canadian resident estate.
• If a Canadian resident sole executor ceased to be resident in Canada, the estate would be subject to a deemed disposition of all of its assets at the fair market value at the date of departure and subject to tax on any deemed capital gains.
• A non-resident estate could be subject to tax in the country where the executor resides. In certain situations the estate could be considered resident in both countries and subject to tax in both jurisdictions.
If you want to appoint a non-resident of Canada to be your executor, how do you prevent your estate from becoming non-resident? The Canada Revenue Agency Interpretation Bulletin IT-447 Residence of a trust or estate states, “Normally residence of a trust is dependent upon residence of the trustee or trustees who can exercise management and control of the trust.” They also state that the trustee who has management and control of the trust is the person with most, or all, of the following powers or responsibilities:
a) control over changes in the trust's investment portfolio,
b) responsibility for the management of any business or property owned by the trust,
c) responsibility for any banking, and financing, arrangements for the trust,
d) control over any other trust assets,
e) ultimate responsibility for preparation of the trust accounts and reporting to the beneficiaries of the trust, and
f) power to contract with and deal with trust advisors, e.g., auditors and lawyers.
Therefore, to prevent your estate from becoming non-resident you should appoint an executor or co-executor that you can be reasonably assured will always reside in Canada, like a corporate trustee, and specifically assign management responsibilities to them in your will. That way, you will be able to achieve the best of both worlds.
This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc.(SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as personal investment, tax or pension advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. This publication and all the information, opinions and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI. Scotiabank Group refers to The Bank of Nova Scotia and its domestic subsidiaries. ™ Trademarks of The Bank of Nova Scotia.
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