Tax memo: Supreme Court of Canada rules on trust residence – St. Michael Trust Corp. v. The Queen (Garron Family Trust)

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Memo No.: 2012-19

The Supreme Court of Canada (SCC) today (April 12, 2012) released its decision in St. Michael Trust Corp. v. The Queen (sub nom. Garron). The SCC agreed with the reasoning in the lower courts that central management and control over the trust property, rather than the residence of the trustees, was the appropriate test for determining trust residence for purposes of the Income Tax Act (the Act).

The case is important because it clarifies the principles to be applied to determine trust residence and, as well, provides some comments with broader implications for determining corporate residence.

Until Garron, only one Canadian case had considered the issue of trust residence. In Thibodeau Family Trust v. The Queen, 78 DTC 6376, the Federal Court– Trial Division (FCTD) had determined that, on the particular facts of the case, the trust resided where the majority of the trustees were resident. In Thibodeau, the FCTD stated (although arguably in obiter comments) that the central management and control test (which has historically been applied in determining the residence of a corporation) was inapplicable to trusts.

In Garron, the Tax Court of Canada (TCC) found that Thibodeau was insufficient authority to reject using the central management and control test to determine trust residence and ruled that test should also apply to trusts, with such modifications as are appropriate. Applying this test to the facts, the TCC held that the trusts in question were resident in Canada. The Federal Court of Appeal (FCA) upheld the TCC analysis on this point.

Read this Tax memo to learn more about key aspects of the Garron decision.