The Taxpayer paid $300,000 to a corporation for the executive producer servicers of an individual employed by the corporation. Such amount would have qualified for the B.C. production services tax credit but for a requirement that the shares of the corporation “belong” to a BC-based individual, whereas the shares were held by the individual in his capacity of trustee of an alter ego trust which had been settled by him (to avoid B.C. probate duties) and of which he was the life beneficiary. The Directorate noted that the relevant BC ITA provisions were modeled on ITA s. 125.4(1) – labour expenditure – (b)(iii) and s. 125.5(1) – Canadian labour expenditure - (b)(iii).
In finding that this shareholding satisfied the above “belong to” test, rather than the shares belonging to the trust under the position of the TSO, the Directorate stated:
[T]he shares … belong to [the individual] and not the Trust for purposes of the tax credit. As a matter of law, a trust does not have an independent legal existence and is a legal relationship. Property to which a trust relationship applies is held by the trustee(s) of a trust in order to fulfil their obligations as trustees. The facts further support this position as [the individual] has legal ownership of the shares in [the individual’s] role as trustee, and beneficial ownership of the shares as the sole beneficiary who is entitled to the income on the shares while [the individual] is alive, and no other person may receive or obtain the use of the shares while [the individual] is alive.