Effective September 19, 2014, the Canada Revenue Agency (the
"CRA") released a new Income Tax Folio
on the Residence of a Trust or Estate. This Income Tax Folio
("S6-F1-CI") replaces and cancels
Interpretation Bulletin IT-447, Residence of a Trust or
Estate. The purpose of S6-F1-CI is to provide CRA's views
concerning the determination of the residence status of a trust (as
that term is defined in subsection 248(1) of the Income Tax
Act, as amended ("ITA")) for
Canadian income tax purposes. S6-F1-CI applies for both federal and
provincial tax purposes.
Prior to the decision in Fundy Settlement v. Canada,
2012 SCC 14 ("Fundy"),1
trusts were generally considered to be resident where the majority
of the trustees resided. For the purposes of the ITA, Fundy decided
that a trust will reside in the jurisdiction where the central
management and control actually takes place. S6-F1-C1 further
clarifies that if there is more than one trustee involved in the
exercise of management and control over the trust, the trust will
reside in the jurisdiction in which the more substantial central
management and control takes place. Regardless of any contrary
provisions in the trust agreement, central management and control
may be found to rest with someone other than the trustee, such as a
settlor or a beneficiary.
S6-F1-C1 also provides factors that will be considered by the
CRA when determining the jurisdiction in which the central
management and control of the trust is exercised. They are as
the factual role of a trustee and other persons with respect to
the trust property, including any decision-making limitations
imposed thereon, either directly or indirectly, by any beneficiary,
settlor or other relevant person; and
the ability of a trustee and other persons to select and
instruct trust advisors with respect to the overall management of
When considering these factors, the CRA will look to any
evidentiary support that demonstrates the exercise of decision
making powers and responsibilities over the trust. After examining
all factors, the CRA may determine that a trust is resident in a
specific province or in Canada even if another province or country
considers the trust to be resident in that other province or
In addition, trusts that are not factually resident in Canada
may be deemed to be resident in Canada for a tax year under the
non-resident trust rules in section 94 of the ITA for certain
purposes, including computing the income of the trust and
determining its liability for Part 1 tax. These rules will be
applicable where there is a resident contributor to the trust or a
resident beneficiary under the trust.
Paragraph 94(4)(h) of the ITA ensures that a deemed resident
trust is not considered resident for the purposes of applying the
attribution rule respecting property held by the trust in
subsection 75(2) of the ITA. Generally each of the resident
contributors of and the resident beneficiaries under a deemed
resident trust are jointly and severally liable with the trust for
many of the trust's obligations, including Part 1 tax
S6-F1-C1 also reflects the amendments to section 4.3 of the
Income Tax Conventions Interpretation Act
("ITCIA"). For the purposes of applying
a particular tax convention, in accordance with section 4.3 of the
ITCIA, if a trust is deemed resident of Canada by subsection 94(3)
of the ITA, it will be deemed to be a resident of Canada and not a
resident of the other contracting state. The concluding note in
S6-F1-C1 respects subsection 250(6.1) of the ITA which operates to
avoid unintended tax consequences that may arise under a number of
the provisions of the ITA that require a trust to be resident in
Canada throughout a tax year. Subsection 250(6.1) of the ITA deems
a trust that ceases to exist at any time in a tax year to be
resident in Canada during the remaining period in the year if it
was resident in Canada immediately before it ceased to exist.
This newly introduced Income Tax Folio, S6-F1-C1, consolidates
the content of former Interpretation Bulletin IT-447 and reflects
the substantive technical and interpretive changes introduced
through legislative amendments and the decision of the Supreme
Court of Canada in Fundy. This new Income Tax Folio can be relied
upon as an up to date summary of the CRA's interpretation of
the law, and feedback from the tax community on the substance and
content of this Income Tax Folio is open until December 19,
The establishment of trusts and the residency of trusts in
particular can be complicated. Professional advice from a qualified
practitioner is highly recommended.
1 Also known as St. Michael Trust Corp. or
Garron Family Trust. Earlier citations include Garron
Family Trust v. The Queen, 2009 TCC 450; St. Michael Trust
Corp. v. Canada, 2010 FCA 309.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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