Offshore Asset Protection Trusts for Canadian Residents

Although trusts can be extremely tax efficient from a Canadian tax perspective, one of the ongoing developments of the Canadian legal system is that the courts have been increasingly willing to look through the corporate veil and through domestic trust structures to allow creditors to attack assets, particularly in the area of family law.  Therefore if a domestic Canadian wealthy family wishes to establish trusts for the benefit of their children and grandchildren, they would be well advised to establish such trusts offshore where the courts are far more protective of the form of trust.  Generally speaking, unless there has been some form of fraudulent or illegal transaction, most offshore jurisdictions will not automatically enforce judgment debts from Canadian courts.  The longer a trust has been established, and the longer that the assets have been in such an offshore trust, the more likely that the local courts will respect the fact that the beneficiaries of discretionary trusts do not own anything that can be seized.  We note that from a tax perspective, such trusts do not provide for any deferral or reduction in Canadian tax, and in some circumstances may be less tax efficient than owning the assets directly.  Although under Canada’s tax laws any income, including rents, interest, profits or dividends, would still be attributable to the contributor of the assets to the trust, the ability for families to keep the wealth in the family can be an important priority in an era where half of all marriages fail, and of increased litigation in general.

TaxChambers LLP is collaborating with Andersen Global® in Canada.