The Supreme Court recently ruled on the residence of trusts for tax purposes, and Vern Krishna has some commentary on the decision here. His view is that the ruling severely curtails the usefulness of offshore trusts by Canadians by reversing a long-held status quo that identified the residence of a trust by reference to that of its trustees, and adopting in its place a management and control standard (as used in the case of corporate residence in Canada and most places other than the US):
"The decision will cause a seismic shift in offshore tax planning for trusts. Tax professionals, who have lived comfortably under the old regime for 30-plus years, must now review the structure of the hundreds of trusts located in off-shore jurisdictions, particularly in Barbados, to ensure that the named trustees actually manage and control the trust’s assets and make all of the high-level decisions that is expected of fiduciaries."Krishna calls this a move from form to substance. How much of a move depends on the parameters for determining the location of management and control, about which the SC says:
"In general, the central management and control of a corporation will be exercised where its board of directors exercises its responsibilities. However ... where the facts are that the central management and control is exercised by a shareholder who is resident and making decisions in another country, the corporation will be found to be resident where the shareholder resides."The SC says the test is well settled for corporations in Canada (and applies to trusts despite the applicant's effort to distinguish trusts from corporations), so perhaps there is guidance on what "exercising responsibilities" means, and how much woud have to be exercised to warrant a designation of management and control.
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