CRA finds that the property of an alter ego trust “belonged” to its sole trustee and life beneficiary rather than to the trust

In order for a fee paid to a corporation for the executive producer servicers of an individual employed by the corporation to qualify for the B.C. production services tax credit, there was a requirement (essentially copied from ITA s. 125.4(1) – labour expenditure – (b)(iii) and s. 125.5(1) – Canadian labour expenditure - (b)(iii)) that the shares of the corporation “belong” to a BC-based individual – whereas, here, 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.

In finding that this shareholding satisfied the above “belong to” test, rather than the shares belonging to the trust as suggested by the TSO, Headquarters 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. {Here] … [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 … .

Neal Armstrong. Summary of 9 July 2024 Internal T.I. 2023-0976691I7 under s. 125.4(1) – labour expenditure – (b)(iii).