Paul Tamaki		Sabrina Wong

The Tax Court of Canada has held that, where a statutory rule does not apply, the residence of trusts should be determined using the test of central management and control (CMAC).

In Garron, the trustee of the trust was a corporation incorporated, licensed and resident in Barbados. The beneficiaries were Myron Garron (a Canadian resident), his wife and children.

The trust realised a substantial capital gain on the sale of a Canadian corporation and the issue was whether the Canada – Barbados treaty applied to exempt the trust from Canadian tax on the basis that it was resident in Barbados and not resident in Canada.

The court rejected the argument that, based on the earlier Canadian decision in Thibodeau, residence of a trust should be determined based on the residence of the trustee who manages the trust or controls the trust property.

Although it was acknowledged that there were significant differences between the legal nature of a corporation and a trust, it was concluded that, in the interests of certainty, predictability and fairness, the test of CMAC established for corporations should also apply to trusts, with such modifications as are appropriate.

The court concluded that CMAC of the trust was located in Canada with Myron Garron because he made the substantive decisions respecting the trust, either directly or indirectly through his advisers. In the UK case of Wood v Holden, no one directed the decisions made by the managing director of the non-resident corporation.

In contrast, the trustee in Garron assumed a limited role in the management of the trust. Accordingly, the trust was subject to Canadian tax because it was resident in Canada under general principles.

We understand that this decision is being appealed.

Paul Tamaki (paul.tamaki@blakes.com) and Sabrina Wong (sabrina.wong@blakes.com)
Toronto