How we help
- Section 94 deemed-resident-trust analysis for non-resident trusts with Canadian contributors or beneficiaries
- US grantor-trust vs. non-grantor-trust classification under IRC §§671–679
- Form 3520 / 3520-A reporting for US persons connected to foreign trusts
- Throwback-rule modelling under IRC §§665–668 for accumulated trust income
- Form 8938 and FATCA reporting for trust beneficiaries
- Cross-border distribution planning to avoid double taxation
- Migration of trusts between Canadian and US trustees
Two systems, two definitions of "trust"
The Canadian Income Tax Act and the US Internal Revenue Code treat trusts in fundamentally different ways. Canada generally taxes a trust as a separate person, with income either taxed in the trust or flowed through to beneficiaries. The US has a binary grantor/non-grantor split that turns on whether the settlor has retained certain powers; if the trust is a grantor trust, its income is taxed to the settlor regardless of distributions.
When a trust touches both countries — a Canadian trust with US beneficiaries, a US trust with Canadian beneficiaries, a non-resident trust with Canadian contributors, a trust that migrates between countries when a trustee moves — the two systems often disagree on who is taxable, on what, and when. Planning around the seams is most of the work.
Section 94 — the deemed-resident-trust rule
Section 94 of the Canadian Income Tax Act is the rule most likely to surprise a non-Canadian trustee. In broad strokes, if a non-resident trust has a "resident contributor" (a Canadian-resident person who contributed property to the trust) or a "resident beneficiary" (a Canadian-resident beneficiary whose connected contributor is also Canadian-resident), the trust may be deemed resident in Canada for most purposes of the Act.
A deemed-resident trust files a Canadian T3 return on its worldwide income. The connected contributor and any other Canadian contributors and beneficiaries can be jointly and severally liable for the trust's Canadian tax. The rule is broad enough to catch many ordinary US trust structures that Americans set up before realizing a beneficiary or contributor was moving to Canada.
The US grantor-trust regime
On the US side, IRC sections 671 through 679 determine whether a trust is treated as a grantor trust. A grantor trust's income is taxed to the settlor as if the trust did not exist, which can be useful — but only when both countries' rules align. A trust that is a US grantor trust as to a US settlor but is also a Section 94 deemed-resident trust on the Canadian side can produce the same income being taxed by both countries with imperfect treaty relief.
Section 679 in particular catches "foreign trusts with US beneficiaries" funded by US persons. Once Section 679 applies, the US person is the grantor for US tax purposes regardless of any state-law analysis, and Forms 3520 and 3520-A become annual obligations.
Throwback rules and distributions
If a foreign non-grantor trust accumulates income and later distributes that income to US beneficiaries, the US throwback rules under IRC sections 665–668 can apply an interest charge that effectively converts long-term tax deferral into a punitive levy. The interest charge compounds at the underpayment rate and is not creditable. Planning to avoid throwback exposure — distributing currently, or recharacterizing the trust as a grantor trust before distributions begin — is usually preferable to triggering it.
Migration and termination
When a Canadian trustee dies, retires, or relocates, the trust's residency can shift. A trust that was Canadian-resident can become US-resident (and trigger US migration consequences), or a US trust can become Canadian-resident (and trigger a deemed disposition under Section 128.1 of the Canadian Income Tax Act). Trustee succession planning that anticipates these residency consequences keeps the structure aligned with the original intent.
How we work the file
Most cross-border trust engagements at Barrett Tax Law begin with a structural diagnosis: who contributed what, who the current beneficiaries are, where the trustees reside, and what the trust deed says. From there we model the Canadian and US tax positions under each scenario the trust is likely to encounter — annual income, capital distributions, beneficiary moves, settlor death — and identify where the structure can be tightened or where elections should be made.
What to expect when you call us
Your first call is a free, no-obligation consultation with a tax lawyer. We will review the details of your situation, explain your options under the Income Tax Act and CRA administrative practice, and give you a clear, fixed-fee quote if you choose to retain us. Your consultation is confidential, and once we are retained, communications are protected by solicitor–client privilege.
If you retain us, we begin work within 24 hours of being retained.
Frequently asked questions
Is the consultation really free?
Yes. Most cases qualify for a free, no-obligation consultation with one of our tax lawyers. During the call we'll review your situation, explain your options, and give you a clear quote if you decide to retain us.
What does a tax lawyer do that an accountant does not?
A tax lawyer focuses on the legal side of tax — disputes, litigation, and the structuring of transactions in light of the law and anti-avoidance rules. That includes representing taxpayers in CRA audits and objections, appearing at the Tax Court of Canada, defending penalties and director or derivative liability, and designing reorganizations such as section 85 rollovers and estate freezes.
The most practical distinction is privilege. Communications with a lawyer are generally protected by solicitor-client privilege, while communications with an accountant generally are not and can be demanded by the CRA. Where the facts are sensitive or the matter could become contentious, that protection matters.
Lawyers and accountants often work together — the accountant on the numbers and filings, the lawyer on strategy, privilege, and the legal record. Barrett Tax Law regularly coordinates with a client's existing accountant.
Do you serve all of Canada?
Yes. Barrett Tax Law represents clients across Canada. We have offices and local phone lines in Toronto, Calgary, Edmonton, Fort McMurray, Ottawa, Vancouver, and Winnipeg, plus a national toll-free line at 1-877-882-9829.
Who is Barrett Tax Law and what areas does the firm handle?
Barrett Tax Law is a Canadian boutique tax law firm that represents individuals and businesses in their dealings with the Canada Revenue Agency. The firm's work spans CRA audits and disputes, voluntary disclosures, Tax Court of Canada litigation, collections matters, and corporate and estate tax planning.
The firm was founded in 2009 and has represented many thousands of clients across Canada. Its head office is in Concord, Ontario (Vaughan), and it serves clients nationwide. You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX).
Most matters qualify for a free, no-obligation consultation, and most are quoted on a fixed-fee basis once scope is understood, so the cost is known before work begins.
What does a tax lawyer do that an accountant cannot?
Accountants prepare returns and financial statements. Tax lawyers represent you when those returns are challenged, audited, or prosecuted — and our communications are protected by solicitor–client privilege, which accountant communications generally are not.
What should I do if I receive a letter from the CRA?
First, identify what the letter is and what it requires. A CRA letter may open an audit, ask for documents, propose adjustments (a proposal letter), confirm a reassessment, or start collection action — and each carries its own deadline and its own implications. Note any date by which a response is required.
Do not ignore it, and be careful about responding off the cuff. What you say and produce can shape your later objection and appeal position, and casual admissions can be difficult to undo. If the letter proposes adjustments or penalties, or if significant amounts are involved, get advice before responding.
A free consultation can help you understand the letter, the deadline, and the right next step. Acting early — while options are still open — is usually far better than waiting until a deadline is near.
Will the CRA criminally prosecute me?
Most CRA disputes are civil. Criminal prosecution is reserved for serious tax evasion or fraud, usually involving deliberate misrepresentation. If you have unreported income, a voluntary disclosure is one of the standard ways to reduce criminal-prosecution risk.
Is the first consultation really free?
Yes. Most matters qualify for a free, no-obligation consultation with an experienced tax lawyer. The consultation is a chance to describe your situation, get a clear sense of the options and likely path, and receive a fee structure in writing before you commit to anything.
You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX) to arrange a confidential consultation. The head office is in Concord, Ontario (Vaughan), and the firm serves clients across Canada.
Are my communications with a tax lawyer confidential?
Yes. Communications between you and your lawyer for the purpose of obtaining legal advice are generally protected by solicitor-client privilege, one of the most strongly protected confidences in Canadian law. In practical terms, the CRA generally cannot compel disclosure of privileged communications.
This is an important difference from working with an accountant or other non-lawyer representative, whose communications and working papers can generally be demanded by the CRA. Where the facts are sensitive — unreported income, offshore assets, or potential penalties — that protection can be significant.
Privilege has limits and can be waived inadvertently, so it should be handled with care. A consultation can explain how privilege applies to your particular situation.
How fast can you start on my case?
We typically begin work within 24 hours of being retained. For audit deadlines, Notices of Objection, and other time-sensitive matters, we move immediately.
What if I have unfiled tax returns from many years ago?
We routinely handle 5+ years of unfiled returns. Through the Voluntary Disclosures Program — applied for before the CRA contacts you — we can usually eliminate gross-negligence penalties and limit interest exposure.