For tax purposes, an estate is considered to be resident wherever the executor of the estate is primarily resident. The estate trust encompasses any income and/or capital gains that arise after the date of death and if the executor is not a Canadian resident, the tax returns for the trust must be filed in the jurisdiction where the executor resides.
There are a few important things to consider when appointing a non-resident executor. To begin with, the trust will be subject to tax reporting requirement in the jurisdiction in which the executor resides which may be different than the tax requirements in Canada and could result in higher taxes payable by the estate which in turn means less residue to divide among the beneficiaries of the estate.
Additionally, where an executor wishes to split the tax burden between the estate and the beneficiaries, they can no longer do so if it is a non-resident trust and the beneficiaries are Canadian.
An estate may also be liable for capital gains tax if the residency of the estate changes during the administration of an estate, for example, if the executor changes his or her place of residency or if someone else takes over the administration of the estate who is not a Canadian resident.
For all of these reasons, it is usually favourable to appoint an executor who lives in Canada or as an alternative, to appoint a Canadian trust company as executor and trustee. When considering appointing a non-resident executor, it is worthwhile to seek the advice of an accountant who is familiar with domestic and foreign tax laws.
Deborah A. Todd
