Where is a Trust Resident?

May 3, 2017 Suzana Popovic-Montag Estate & Trust, Trustees Tags: , , 0 Comments

In the recent decision of The Herman Grad Family Trust v Minister of Revenue, the Ontario Superior Court considered the residence of two trusts, for the purpose of taxation. The Court held that although the trustees of the two trusts were resident in Alberta, the trusts were resident in Ontario and required to pay taxes in Ontario.

The Court restated and applied the test from Fundy Settlement v. Canada:

the residence of a trust for Canadian tax purposes is determined through the “central management and control” test that has historically applied to corporations, that is, where the central management and control of the trust actually takes place.

This test requires a fact-driven analysis. The Court must examine who in reality exercised the powers and discretions vested in the trustee and the place where that person resides. If the trust is, in fact, controlled by a person other than the trustees, the trust resides where the decision-maker resides.

The Court considered a number of factors that indicate management and control of the trust. In particular, the Court considered the trustees’ delegation of certain tasks and decision-making. In this case, the trustees had the power to delegate much of the decision-making in regard to investments to third parties. The Court held that because the delegation was exercised with the care required by the trustees, the trustees satisfied their fiduciary responsibilities, even though certain decision-making was made by third parties.

Although the trustees acted properly in the delegation of the investment responsibilities, the management and control of the trust were actually conducted by third parties. The ability to retract a prior delegation of decision-making is insufficient to establish the trustees retained control of the trust. , To establish the trustees maintained control, it would be necessary to show that the trustees had actively supervised the decision-makers.

The Court found it significant that the trustees had kept few notes of conversations between themselves or with the beneficiaries. As a result, there was insufficient evidence that the trustees turned their minds to certain decisions.

Overall, the evidence established that the decisions were made by the beneficiary of the trusts, who resided in Ontario, or the chief financial officer of the beneficiary’s company, acting on his instructions. Evidence that the trustees had not breached their fiduciary duties was insufficient to show they maintained control of the trusts. Therefore, the trusts were resident in Ontario.

Thank you for reading.

Suzana Popovic-Montag

Other articles you might enjoy:

Trust Residency – The Test Modified

The International Estate: The Concept of Domicile

Antle v The Queen – Appeal Dismissed by the Federal Court of Appeal

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