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.
Principal Issues: Impact on the CRA published position in relation to the factors it considers indicative for purposes of establishing residency of a trust in light of the 2012 SCC decision in St. Michael Trust Corp.
Position: Residence of a trust is a question of fact to be determined according to the circumstances of each case - the SCC decision affirmed the CRA view that the residence of the trustee does not always determine the residence of the trust.
Reasons: Comments as previously published by the Directorate
British Columbia Tax Conference
September 25, 2012
Question 4 Residency of a Trust for Tax Purposes
CRA's long-standing position on the determination of the residency of a trust for tax purposes is described in IT-447 Residence of a Trust or Estate (published in 1980). In the bulletin, CRA has stated their view that the residence of the person making the important decisions affecting the management and control of the trust property is the most relevant factor in determining the residence of the trust or estate.
The bulletin continues by stating that important decisions being made by the person would include the following:
a. Control over changes in the trust's investment portfolio;
b. Responsibility for the management of any business or property owned by the trust;
c. Responsibility for any banking and financing arrangements for the trust;
d. Control over any other trust assets;
e. Ultimate responsibility for preparation of the trust accounts and reporting to the beneficiaries of the trust; and
f. Power to contract and deal with trust advisors (e.g. auditors and lawyers).
Pursuant to the 2012 Supreme Court of Canada decision against St. Michael Trust Corp. in Fundy Settlement v. Her Majesty the Queen, 2012 SCC 14, does CRA intend on updating its published position on the factors it considers indicative for purposes of establishing the residency of a trust for federal and provincial income tax purposes?
CRA Response
As highlighted in our recent response to a similar question asked of us at the 2012 Prairie Provinces Tax Conference, the long-standing position of the Canada Revenue Agency ("CRA") on the determination of the residence of a trust in Canada, or in a particular province or territory within Canada, is set out in Interpretation Bulletin IT-447, Residence of a Trust or Estate, dated May 30, 1980. Paragraph 5 of IT-447 says,
Normally, residence of a trust is dependent upon residence of the trustee or trustees who can exercise management and control of the trust. In some situations, the facts may indicate that a substantial portion of the management and control rests with some other person such as the settlor or the beneficiaries. In these situations, the residence of this other person may be considered to be the determining factor for the trust, regardless of any contrary provisions in the trust agreement.
In our view, the Supreme Court of Canada ("SCC") has affirmed the CRA's position that the residence of the trustee does not always determine the residence of the trust, and has clarified that the trust will be resident where the central management and control of the trust actually takes place.
At the 2011 Canadian Tax Foundation annual conference, the CRA announced the launch of the new Income Tax Folio product to replace the existing Interpretation Bulletins. Each Folio will be published on an "as completed basis", and the related IT Bulletin will be cancelled. To date, officials from numerous areas within the CRA as well as members of tax professionals' organizations in the private sector have been consulted, allowing for the identification and prioritization of IT Bulletins that need to be reviewed and updated.
The CRA has identified IT-447 as one of the IT Bulletins to be reviewed and replaced in the early phases of the Folio initiative. In the course of this review, the CRA will consider whether any of the information in IT-447 (including its published position on the factors it considers indicative for purposes of establishing the residency of a trust for federal and provincial income tax purposes) will need to be updated as a result of the SCC decision. Further details in this regard will be made available as the Folio initiative progresses.
Kim Duval
File 2012-045758
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