Jack Bernstein and Robert Santia, “Principal Residence Exemption: Trusts and Non-Residents”, Canadian Tax Highlights 25:2 (February 2017) comments on the rules now applicable to the principal residence exemption (the PRE) where a trust owns the residence. After 2016, only certain trusts can claim the PRE as follows:
- an alter ego trust in favour of a Canadian-resident individual;
- a joint spousal or common-law partner trust in favour of a Canadian-resident individual;
- a spousal or common-law partner trust in favour of a Canadian-resident individual;
- a qualified disability trust in favour of a Canadian-resident individual; and
- a trust for minor children resident in Canada if the parent is deceased.
The authors make the following comment about trusts not listed above:
Nevertheless, the capital gain may not be taxed on a post-2016 sale if the property is distributed to a Canadian-resident beneficiary who ordinarily inhabited the property (or whose spouse or children ordinarily inhabited the property) during the relevant years before the sale or its deemed disposition, as the case may be. The Canadian-resident beneficiary can designate the property as his or her principal residence for all the years in which the trust owned the property and in which the property was ordinarily inhabited by the beneficiary or his or her spouse or children (subsection 40(7)). But if the beneficiary whose family unit ordinarily inhabited the property dies after 2016 and before the property is distributed to him or her by the trust, the property cannot be designated as a principal residence for the post -2016 years that the trust owned it.