All About Estates


As my fellow bloggers have explained in some detail, there are various tenets governing trusts having legal and tax implications depending on the circumstances. One of these is the location of “central management and control” which the Courts have previously ruled as being the basis for determining residency.

Recently, the Supreme Court of Newfoundland and Labrador was asked to rule on the specific issue of residency which would have significant tax implications to the trust depending on the Court’s determination.

In Discovery Trust vs Canada (National Revenue), 201201G6615, at issue was whether a trust was a resident of Newfoundland and Labrador where the beneficiaries resided or in Alberta where the trustee was a resident. At stake was a very significant amount of additional tax and arrears interest if the residency was ruled to be in Newfoundland and Labrador.

The Trust was settled by an individual which included his children as both trustees and beneficiaries, the majority of which were resident of Newfoundland and Labrador. The trust assets included a significant business enterprise. Several years later, the trustees were replaced by a company resident in Alberta, specializing in trustee services.

The Canada Revenue Agency argued that the beneficiaries still had control over the trust and thus the trust remained a resident of Newfoundland and Labrador as the Trustee only performed administrative tasks.

The Court ruled that the trust was a resident of Alberta because it determined that “central management and control” was with the trustee because:

– Even if the trustee consented to the beneficiaries’ direction, the action did not constitute loss of independence. The Court had determined that the trustee had maintained its independence by carefully reviewing the transaction in question, made the appropriate inquiries to arrive at an informed decision, minimizing negative consequences and acting in the best interests of the beneficiaries.

– Even if differences in viewpoints between the trustee and the beneficiaries were resolved by following the path suggested by the beneficiaries, this does not necessarily erode the trustee’s authority. There were no facts to demonstrate that the trustee was simply following along.

– Even if the trustee did not have an accurate set of values for the assets held in trust, this did not diminish the trustee’s authority. It appears that the trustee was not aware of the circumstances surrounding some of the assets held in trust.

I thought the ruling was interesting because the discussion of the fact situation regarding central management and control reaffirmed various aspects of trusts discussed in previous blogs which have applicability to trusts in general beyond those matters that are just tax related.

Thanks for reading

About Steven Frye
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