13 July 1989 Income Tax Severed Letter 5-7905 - [Residence of a Trust for the Purposes of the Act]

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.

Wyman W. Webb 957-2109

Attention: XXXX

JUL 13 1989

Dear Sirs:

Re: Residence of a Trust for the Purposes of the Income Tax Act (Canada) (the "Act")

This is in reply to your letter of April 7, 1989 in which you requested our opinion concerning the determination of the residence of a trust for the purposes of the Act. In particular, you asked the following questions:

...will a properly established non-resident trust, with nonresident trustees but resident beneficiary, retain its nonresident status for Canadian tax purposes, if the trust property is held in custody in Canada?

...under these circumstances, if such trust permits the resident beneficiary to use trust property as collateral for loans, will this use of trust property cause Revenue Canada to consider the trust as a Canadian trust, rather than a nonresident trust?

The residence of a trust for the purposes of the Act is a question of fact that can only be answered based on an examination of all of the relevant facts. We are therefore unable to provide a definitive answer with respect to these questions, as the residence of such a trust will depend upon an examination of all of the relevant facts. We are, however, able to provide the following general comments.

In paragraph 1 of Interpretation Bulletin IT-447 (a copy of which is enclosed) it is indicated that "...a trust is generally considered to reside where the trustee, executor, administrator, heir or other legal representative who manages the trust or controls the trust assets resides". Therefore, it will generally be the residence of the person or persons who control the trust assets that will determine the residence of the trust and not the physical location of the trust assets. As indicated in paragraph 4 of IT-447 , however, the location of the trust assets will be an important factor in those cases where it may not be clear who has management and control of the trust.

It is also indicated in paragraph 4 of IT-447 that "...the residence of the beneficiaries of a trust and domicile of the settlor are not considered to be relevant except in situations as described in (paragraph) 5..." These situations are those where "...the facts ...indicate that a substantial portion of the management and control rests with ... the settlor or the beneficiaries. In these situations the residence of this ...person may be considered to be the determining factor for the trust regardless of any contrary provisions in the trust agreement." The fact that a beneficiary is permitted to use trust property as collateral for loans of the beneficiary may be a relevant factor in determining whether a substantial portion of the management and control of the trust rests with such beneficiary.

It should be noted that as indicated in paragraph 9 of IT-447 , "...pursuant to paragraph 94(l)(c) (of the Act) a trust not otherwise resident in Canada may be deemed to be a resident in Canada for the purposes of Part I of the Act if the trust is such that the amount of the income or capital of the trust to be distributed at any time to any beneficiary of the trust depends upon the exercise by any person of, or the failure by any person to exercise, any discretionary power."

It is also stated in paragraph 11 of IT-447 that other factors may be considered where the purported residence of a trust or estate appears to have been motivated by reasons of tax avoidance.

Our comments herein are not rulings, as explained in paragraph 24 of Information Circular 70-6R.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch