Principal Issues: Relevance of certain facts in respect of a trust's residency determination.
Position: General comments.
Reasons: Question of fact.
APFF 2012- Financial Strategies and Instruments Roundtable
Question 2 - Garron and residence of a trust holding an investment portfolio
The Supreme Court of Canada released its unanimous decision on the determination of the residence of a trust for tax purposes in Fundy Settlement v. Canada (footnote 1).
As a result of the judgment, certain questions arise as to the criteria to be used in determining a trust's place of residence where the trust holds only a portfolio of investments, particularly in the case of immigrant trusts.
Question to the CRA
What weight should be assigned to the following criteria and how might each affect the determination of the residence of a trust?
1- The location of the brokerage account
2- The location of the portfolio manager
3- The fact that the management is or is not discretionary
4- The place where the securities are held
5- The location of trustees’ meetings and decision making
CRA Response
The long-standing position of the CRA is that the determination of a trust's place of residence must be made in light of all the facts of a particular situation. We refer in this regard to Interpretation Bulletin IT-447- Residence of a Trust or Estate, issued by the CRA on May 30, 1980.
In Fundy Settlement, the Supreme Court of Canada stated that it is justified to apply the central management and control test in determining the residence of a trust, just as it is applied in determining the residence of a corporation. The adoption of this jurisprudential test by the highest court of the land generally confirms that the determination of the place of residence of a trust for the purposes of the Income Tax Act is a question of fact.
In our view, even though certain factors and factual elements taken in isolation may seem commonplace and neutral, the application of a combination of factors specific to a particular situation is likely to taint the determination of central management and control of the trust involved. In addition, from a practical perspective, the fact that there may be a desired place of residence of a trust that may have been planned for tax reasons is likely to limit the quality of the evidence available to determine whether in fact central management and control is being exercised by a trustee. In this regard, and depending on the circumstances of a particular situation, we believe that it would not necessarily be required that an express proof of facts be made. Consistently with the approach taken by Woods J. of the Tax Court of Canada (Garron Family Trust et al v. The Queen (footnote 2)), inferences arising from the totality of the evidence, or even the absence of evidence to the contrary, could be invoked.
In this context, it does not seem appropriate to define and comment on any specific factors that may be relevant for the purpose of determining whether there in fact is an exercising of authority over significant decisions of a trust. This approach appears to us to be further justified by the fact that the determination of the place of residence of a trust, although generally made at one time, may require that factors and factual elements relating to an extended period be considered. Finally, it should be noted that the fact that a person advises a trustee should not in itself generally alter the location of central management and control of the trust at the trustee level.
Yannick Roulier
(613) 957-2134
2012-045127
October 5, 2012
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 2012 SCC 14 (« Fundy Settlement », also known as St. Michael Trust Corp. or Garron Family Trust).
2 2009 TCC 450