2021-0876211E5 KiwiS

Principal Issues: Whether a particular non-resident savings scheme is an "exempt trust" as defined in subsection 233.2(1) for purposes of the foreign reporting requirements?

Position: Likely not, but question of fact

Reasons: Based on the information provided, the particular scheme does not appear to satisfy the conditions in the definition of an “exempt trust”

Author: Podor, Karina
Section: 233.2(1), (4); Regulation 4801.1, 6803

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                                                                                                                           2021-087621
                                                                                                                           K. Podor

April 8, 2021

Dear XXXXXXXXXX

Re:   Foreign reporting requirements, Contributions to a non-resident trust

This is in reply to your correspondence dated December 22, 2020 in which you asked us to confirm whether a Canadian resident who contributes to a personal KiwiSaver scheme (established in accordance with New Zealand legislation) is subject to the foreign trust reporting obligations in Canada under subsection 233.2(4) of the Income Tax Act (the “Act”).

Specifically, you believe that your KiwiSaver scheme is exempt from the foreign trust reporting requirements on the basis that it satisfies the conditions set out in paragraph (c) of the definition of an “exempt trust” in subsection 233.2(1). We understand that no employer contributions were ever made to your scheme.

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (footnote 1)  and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R11, Advance Income Tax Rulings and Technical Interpretations.

Whether a particular arrangement, or savings scheme in this case, constitutes a trust for purposes of the Act is a question of fact and trust law. Such a determination requires a review of all relevant facts and documentation of each case. For purposes of our response to your enquiry, we have assumed that your scheme would be considered a trust under the Act.

Generally, for purposes of subsection 233.2(4), Form T1141, Information Return in Respect of Contributions to Non-Resident Trusts, Arrangements or Entities, must be filed by any Canadian resident who contributed property to a non-resident trust. As you highlight in your letter to us, the foreign trust reporting requirements do not apply to certain “exempt foreign trusts” (as that term is defined in subsection 94(1) which are not relevant in this case) and to “exempt trusts” as defined in subsection 233.1(1). We do not, however, believe your KiwiSaver scheme would qualify as an exempt trust as set out in paragraph (c) of that definition.

More specifically, in order to qualify under subparagraph (c) of the definition of “exempt trust” in subsection 233.2(1), the interest of a beneficiary under the trust must be described by reference to units and the trust must comply with the prescribed conditions set out in section 4801.1 of the Income Tax Regulations. These prescribed conditions generally require that, with respect to a class of units, at least 150 beneficiaries of the trust must each hold at least one “block of units” of that class and such units must have, in aggregate, a fair market value of at least $500.

Based on an informal review of the relevant New Zealand legislation and available administrative guidance, it appears to us that an interest of a beneficiary under a KiwiSaver scheme is not described with reference to trust units nor does it appear that a KiwiSaver scheme is required to have a minimum of 150 beneficiaries. We note that the accumulated funds in a particular trust may be invested in various financial products, including mutual funds which are described with reference to units, but this type of investment would not necessarily describe the beneficiary’s interest in the trust. The manner of reporting the property held in a trust would not directly result in the trust itself meeting all of the conditions set out in paragraph (c) of the definition of “exempt trust” in subsection 233.2(1).

We trust these comments will be of assistance.

Yours truly,

Kimberly Duval, CPA, CA
Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  Unless otherwise indicated, all references are to the Income Tax Act.

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