All About Estates

Provincial residency of a Trust

The Canada Revenue Agency (CRA) was asked if there was any change to their view regarding the application of the central management and control (CMC) test in establishing the residency of a trust for provincial income tax purposes in light of the decisions in Discovery Trust v. Canada and Boettger C. Agence du revenu du Québec.

In Discovery Trust v. Canada (National Revenue), the issue was whether beneficiaries and their advisers exercised central management and control such that the trust would be resident in Newfoundland, or whether the trustees exercised central management and control such that the trust would be resident in Alberta. In that case, the Supreme Court of Newfoundland and Labrador decided that the trust was resident in Alberta.

In Boettger c. Agence du revenu du Québec, the issue was whether the trust was resident in Quebec or in Alberta. The Court of Québec (Civil Division) found that the Alberta trustee”s role was to passively hold the assets of the trust and follow the actions dictated by the professional advisors; accordingly, the Court determined that the trust was resident in Quebec.

One may be motivated by Alberta having the lowest provincial tax rate to establish residence in that province.

Determining the location in which the central management and control of a trust takes place continues to be a question of fact. Relevant factors may include, for example, whether the beneficial interests therein are closely held such as in a personal or family trust arrangement in which the beneficiaries or the settlor might be in a position to exercise management and control over the trust, or are widely held by members of the public such that the trustee does in fact have management and control over the trust.

The CRA’s view regarding the application of the central management and control test in establishing the residence of a trust for provincial income tax purposes has not changed in light of the above decisions.

Derek A. de Gannes: Senior Director, Private Client Services of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com