St Michael Trust Corp loses Canada SC battle

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St Michael Trust Corp loses Canada SC battle

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St Michael Trust Corp has today lost its Supreme Court of Canada (SCC) battle over the tax residence of a trust.

The decision was unanimous, with all seven judges ruling against the taxpayer.

At stake was $450 million of capital gains realised by Barbados-constituted trusts. The Canada Revenue Agency said that the trusts owe Canadian income tax on the gains realised as residents of Canada.

The question before the court was whether these trusts were resident in Canada or the Barbados.

“The SCC decided the issue based on its application of the corporate test of central management and control to trusts,” said Ed Kroft QC, of Blake, Cassels & Graydon. “It deferred to the reasoning of the tax court judge and the Federal Court of Appeal panel on this issue. It agreed with the findings of fact by the trial judge that in this case there was no central management and control exercised by the trustees who only rendered administrative services.

“The last paragraph of the decision is interesting in that the SCC is saying that no one should infer that the SCC is agreeing or not with the Federal Court of Appeal on the application of section 94 or GAAR given that it dismissed the appeal on the basis that the trusts were resident in Canada.”

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