Australian Trusts and Moving to Canada: A Tax Trap for the Unprepared

For Australians, trusts are a familiar and often very effective way to own businesses and investments. For Canadians, trusts exist too—but they are used very differently. When Australians move to Canada while owning an Australian trust, those differences collide, and the result is often unexpected compliance burdens, double taxation, and costly restructuring.

This is one of the most common and most misunderstood cross-border tax issues we see.

Trusts Are Common in Australia — But Not in Canada

In Australia, trusts—particularly discretionary (family) trusts—are commonly used to own businesses because they offer flexibility in distributing income, effective tax planning for families, asset protection, and ease of succession planning. They allow business profits to be allocated among family members or related entities each year based on tax efficiency, making them a highly practical and culturally entrenched structure for Australian business owners.

In Canada, trusts are far less common as business-owning vehicles, as the benefits are not as far reaching.

This difference becomes critical the moment an Australian trust owner becomes a Canadian tax resident.

Corporations Are Covered by the Treaty — Trusts Are Not

When an Australian moves to Canada owning shares of an Australian company, the Canada–Australia tax treaty usually provides relatively clear and favourable outcomes, and double reporting and taxation is often mitigated.

Trusts, however, are a different story.

The Canada–Australia tax treaty does not comprehensively address trusts—especially discretionary trusts. As a result:

• Canada may treat the trust as Canadian-resident
• Australia may continue to tax the trust as Australian-resident
• The same income can be taxed twice, with limited or no relief

This is where things start to unravel.

When an Australian Trust Becomes “Canadian” for Tax Purposes

Under Canadian domestic law, a trust can be deemed resident in Canada if:

• Canadian residents are trustees, or
• Canadian residents exercise effective control, or
• a Canadian resident (such as a settlor or beneficiary) has made a contribution—directly or indirectly—or has certain ongoing connections to the trust, causing the trust to be taxed in Canada on its worldwide income.

This can happen even if:

• The trust was created in Australia
• The assets and business remain in Australia
• Australian tax continues to apply

The result? The trust may suddenly be required to file Canadian trust returns, report worldwide income, and potentially pay Canadian tax—on top of Australian tax.

Common Problems We See

When Australians move to Canada with existing trusts, we frequently see:

• Dual residency of the trust, with no treaty tie-breaker
• Double taxation on business profits or investment income
• Canadian T3 trust filings triggered unexpectedly
• Foreign reporting penalties for missing disclosures
• Mismatch of tax credits, where Australian tax paid is not fully creditable in Canada
• Estate and succession issues, especially for family trusts

In many cases, the trust structure that worked perfectly well in Australia becomes a long-term liability in Canada.

Business Held Through an Australian Trust: A Special Risk

Australian businesses are often owned through discretionary trusts for income-splitting and asset-protection reasons. Once a key individual moves to Canada, that structure can create serious problems:

• Canada may tax trust income even if no cash is distributed
• Trust income allocations may not be respected under Canadian law
• Retained earnings inside the trust can become taxable annually
• Planning flexibility that existed in Australia may disappear entirely

What looked like good planning at home can turn into a compliance nightmare abroad.

Planning Before (or After) the Move Is Critical

The best outcomes almost always involve early planning. Options may include:

• Restructuring the trust before Canadian residency begins
• Converting trust ownership to corporate ownership
• “Freezing” or unwinding trust structures where appropriate
• Managing trustee roles and control carefully
• Coordinating Canadian and Australian tax advice

Once Canadian residency begins, choices become more limited and more expensive.

Final Thoughts

Australian trusts are not “bad” structures—but they are often incompatible with the Canadian tax system. The biggest mistake we see is assuming that because a trust works well in Australia, it will be neutral or ignored in Canada. It won’t be.

If you are an Australian business owner or investor moving to Canada—or already here—with interests held through an Australian trust, specialized cross-border advice is essential. The cost of ignoring the issue is almost always higher than the cost of addressing it properly.