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Use of a Canadian Special Purpose Corporation for Canadians holding U.S. Assets
Canadians are potentially subject to U.S. Estate tax on their U.S. assets. A common practice to minimize that exposure has been to hold the U.S. assets in a special purpose Canadian corporation that is in turn owned by the Canadian individual. The use of such a special purpose corporation has not resulted in income to the corporation’s owner for the personal use of the corporation’s assets.
The Canada Revenue Agency has recently announced a change in position relating to the use of special purpose corporations to hold U.S. assets. Any new use of a special purpose corporation may result in taxable income to the shareholder. The reason for the change is that the Canada-United States Income Tax Treaty provides double taxation relief for Canadians who pay U.S. estate taxes, so the special purpose corporation is no longer necessary. Existing special purpose corporations are "grandfathered."