28 November 2001 Internal T.I. 2001-0108517 - Treaties Whether trust is individual

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether a trust is an individual for purposes of tax conventions.

Position: No

Reasons: Trusts and individuals are both referred to in most tax conventions. As a result, a reference specifically to an individual in a particular provision of a tax convention cannot be considered as a reference to a trust.

Characterization of a Trust under a Tax Convention
Memo to File - November 28, 2001
2001-010851

Issue

Whether a trust is an individual for the purposes of Canada's income tax conventions.

Position

A trust is generally not an individual for the purposes of Canada's income tax conventions.

Analysis

· Although the word "individual" is not defined in Canada's tax conventions, and would normally be interpreted by reference to Canadian income tax law (which taxes a trust as an individual), both the Income Tax Conventions Interpretation Act and paragraph 2 of Article 3 of the Canadian Model Income Tax Convention (the "Model") provide that a different interpretation applies where the context requires it.

· It is our view that in the context of the Model, the term "individual" is to be interpreted to mean "natural person" because paragraph 1(d) of Article 3 of the Model (the definition of "person") refers to both an "individual" and a "trust". We can infer from this that subsequent references in the Model to an "individual" cannot not be interpreted as including a trust. This interpretation would generally prevail across most if not all of Canada's income tax conventions that have been crafted by reference to the Model if the definition of "person" in the particular convention under consideration makes reference to both an "individual" and a "trust".

The above position is different from the interpretation set out in document number 912246 dated September 27, 1991 and should be considered to override such earlier interpretation.

Impact

One of the most important consequences of the above position is that a dual resident trust would clearly not be entitled to determine its residence for the purposes of an income tax convention, under the tie-breaker rule applicable to individuals.

Other Comment

Even if a trust were considered an individual for the purposes of an income tax convention, the tie-breaker rule applicable to individuals would be of no use in clarifying the residence of a trust for the purposes of the convention because terms like "permanent home", "center of vital interest" and "habitual abode" used therein have meaning only in reference to natural persons.

Prepared by: Olli Laurikainen