16 February 1998 External T.I. 9723585 - Barbados trust deemed resident of Canada

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 Department.

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

Principal Issues:

Would Canada retain the right to tax a trust which is resident in Barbados which is deemed to be resident in Canada pursuant to paragraph 94(1)(c)?

Position:

Yes.

Reasons:

See letter.

			                                            	972358
XXXXXXXXXX 	                                                 	J. Stalker

Attention: XXXXXXXXXX

February 16, 1998

Dear Sirs:

We are writing in response to your letter of September 4, 1997 in respect of the application of subsection 94(1) of the Income Tax Act (Canada) (the "Act") and the Canada-Barbados Income Tax Agreement (the "Treaty").

You have presented us with a hypothetical situation where a trust to which paragraph 94(1)(c) of the Act applies is resident of Barbados for the purpose of paragraph 1 of Article IV of the Treaty. You have asked which jurisdiction has the right to tax say a gain from the alienation of shares of a Canadian corporation owned by the trust if the corporation has no immovable property.

As paragraph 94(1)(c) of the Act deems the trust to be a resident of Canada, the trust is a resident of Canada for the purposes of paragraph 1 of Article IV of the Treaty. Therefore the trust is a dual resident and by virtue of paragraph 3 of Article IV, the competent authorities of Canada and Barbados would have to determine by mutual agreement the mode of application of the Treaty to the trust.

As the purpose of paragraph 94(1)(c) is to prevent avoidance of Canadian tax, it is highly unlikely that the competent authority of Canada (that is, Revenue Canada), by mutual agreement with the Competent Authority of Barbados, would give up its right to tax the trust as a deemed resident of Canada since such action would allow the avoidance of Canadian tax. Accordingly, it is our view that Canada would retain the right to tax such a trust. Double taxation, if any, would be relieved to the extent provided for in the foreign tax credit regime of the Act.

Yours truly,

for Director
Reorganizations and International Section
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch