Supreme Court of Canada: Management and Control Residency Test for Trusts

Supreme Court of Canada: Management and Control Residency Test for Trusts

The Supreme Court of Canada (SCC) released its unanimous decision in a case involving how a trust’s residency for tax purposes should be determined. The court held that the principal basis for imposing income tax in Canada is residency.  As with corporations, the residence of a trust should be determined by the principle that a trust resides for the purposes of the Income Tax Act where its real business is carried on, which is where the central management and control of the trust actually takes place.  The residence of the trust is not always that of the trustee.  It will be so where the trustee carries out the central management and control of the trust where the trustee is resident.  Here, however, the trusts are resident in Canada, since the central management and control of the trusts was exercised by the main beneficiaries in Canada and the trustee’s limited role was to provide administrative services and it had little or no responsibility beyond that.
Fundy Settlement v. Canada, [2012] SCC 14
Comments:
1) Many Canadian residents will have to rethink their estate plan.
2) Attention if there are ties to other jurisdictions, e.g. under German law the income of the trust is generally attributed to the income of the settlor or the beneficiary. Transfer to a trust may be taxed as a gift.

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