Is a trust I set up for my kids taxed as a Canadian resident trust if I live outside Canada?

Possibly, even if the trust is set up and administered entirely outside Canada. A trust's residency for Canadian tax purposes generally follows where its central management and control actually happens, typically where the trustees who make the real decisions are resident, but the Income Tax Act also contains specific rules that can deem certain non-resident trusts to be resident in Canada, particularly where a Canadian-resident person contributed property to the trust and Canadian-resident beneficiaries are involved.

These deemed-residency rules exist to stop Canadians from simply parking assets in an offshore trust for the benefit of their Canadian family to avoid Canadian tax on the income. Where they apply, the trust can be taxed in Canada on its worldwide income much as a Canadian trust would be, with additional reporting obligations layered on top because of its non-resident trustees and structure.

Because whether a specific trust falls into deemed-resident treatment depends heavily on exactly who contributed what, who the beneficiaries are, and where decisions are actually made, this is not a do-it-yourself analysis — anyone living outside Canada who has set up, or is considering setting up, a trust for Canadian-resident children needs specific advice before assuming it sits outside the Canadian tax system.