Canada: Central Management And Control Determines The Residency Of A Trust For Provincial Tax Purposes

Last Updated: October 14 2015
Article by Ryan Walker and Ehsan Wahidie

Individuals and families whose tax plans include trusts should take note of the recent decision of the Supreme Court of Newfoundland and Labrador in Discovery Trust v Minister of National Revenue ("Discovery Trust")1 – the first case to deal with the issue of the residency of a trust for provincial tax purposes following the Supreme Court of Canada's decision on trust residency in Fundy Settlement.2 It is significant for confirming that the "central management and control" test set out in Fundy Settlement also applies in the domestic context to ascertain the provincial residency of a trust. It also establishes some guiding principles relevant to taxpayers in determining where a trust is resident for provincial tax purposes.

Trusts are deemed to be individuals for the purposes of income tax in Canada, and the taxable income of a trust is subject to both federal and provincial taxes. The taxation statutes, however, are silent on how to determine the residency of a trust. An earlier decision of the Federal Court was widely accepted as establishing that a trust is resident where its trustee is resident.3 Many taxpayers relied on the tax planning opportunities generated by this decision to establish off-shore trusts. This understanding came due for a revision, however, in light of the Supreme Court of Canada's decision in Fundy Settlement that the residency of a trust in the cross-border context was where its central management and control abided.

Discovery Trust centered on a tax plan designed to allow a trust, most of whose beneficiaries were resident in one province, to take advantage of lower tax rates in effect in another province. The Discovery Trust (the "Trust") was settled by the founder of CHC Helicopter Corporation, Craig L. Dobbin, for the benefit of the Dobbin children, most of whom resided in Newfoundland and Labrador. The Dobbin children were initially made trustees of the Trust, but shortly before the death of the settlor, they resigned and the Alberta office of Royal Trust Corporation of Canada ("Royal Trust") was appointed as successor trustee. At the same time, the assets of the Trust were moved to Alberta (which had more favourable tax rates than Newfoundland and Labrador) and the laws governing the trust were changed to those of Alberta.

The Minister of National Revenue (the "Minister") reassessed the taxpayer on the basis that the Trust was resident not in Alberta, but in Newfoundland and Labrador. Pointing to a number of transactions involving property of the Trust, the Crown argued that the Dobbin children, as beneficiaries, either directly or indirectly made all the decisions concerning the management and control of the Trust and that Royal Trust, as new trustee, was merely responsible for administrative tasks. The Crown argued that, since the central control and management of the trust was in Newfoundland and Labrador, it was a resident of that province and thus subject to that province's income tax regime. If the Trust was resident in Alberta, it would save about $9 million in tax.

The Court confirmed that central management and control is the test for residency for provincial tax purposes. The Court reviewed each of the transactions at issue to determine where central management and control was exercised. The Court found that no substantial decisions were made by the beneficiaries such that control could be said to have been delegated to them. In reaching this conclusion, the Court provided some important guidance about the administration of trusts that individuals should keep in mind when engaging in tax planning:

  1. First, the Court found that, absent action taken under a statutory anti-avoidance provision, it is inappropriate for the Minister to reassess on the basis of a taxpayer's motivation to arrange affairs in a manner designed to minimize taxes payable. This is consistent with existing jurisprudence and long-standing principles of Canadian tax law. Case law also confirms the Minister's general obligation to refrain from recharacterizing a bona fide legal relationship on the basis that another transaction structure would have resulted in the payment of more taxes.
  2. Second, where a trustee is required to approve a transaction in respect of trust property (e.g., as shareholder of shares held in trust), trustee actions that may appear routine and passive do not necessarily indicate an abdication of control and management by the trustee. Reviewing the details of the proposed transaction, acquiring explanations sufficient to make an informed decision, reviewing the trust's governing documents to ensure that the proposed approval is within the trustee's authority, and properly considering the consequences of the transaction for the beneficiaries generally are within the powers of a trustee.
  3. Third, a difference of opinion between trustee and beneficiaries can exist and a trustee can acquiesce to the demands of a beneficiary without giving up its authority over trust property. For example, in Discovery Trust, Royal Trust withheld, at the beneficiaries' request, a lower amount in respect of a tax liability than it had originally planned; the Court found that this did not result in an abdication of its control. Consultation by a trustee with beneficiaries should not, on its own, be seen as a delegation of control to them.

From a practical perspective, this case serves as a reminder that decisions in respect of trust property should be made pursuant to proper governance procedures. Negotiations and disagreements with, and even acquiescence to requests of, beneficiaries need not jeopardize a trustee's control over a trust's affairs so long as the trustee is actively engaged, retains the true decision-making ability, is properly motivated, has independent authority, and is not functioning as a mere nominee. Similarly, a trustee should have the ability to gather information about proposed transactions in respect of trust property without being seen as abdicating its authority. Furthermore, a trust generally may be administered in a manner designed to minimize taxes payable, subject to legislation (including the general anti-avoidance rule in the Income Tax Act (Canada).

Taxpayers employing provincial tax planning strategies similar to the one employed in Discovery Trust should carefully review their decision-making procedures and trust documentation and ensure that central management and control factually abides in the province where the trust is intended to reside. In the meantime, more cases have been, and likely will be, heard in respect of trust residency.4


1 Discovery Trust v Minister of National Revenue, 2015 NTLD(G) 86.

2 Fundy Settlement v Canada, 2012 SCC 14. The decision is alternatively known as Garron Family Trust v R and St Michael Trust Corp v R.

3 Thibodeau Family Trust v Canada, [1978] FCJ No. 607 (FCTD).

4 See, e.g., Boettger c. Agence du revenu du Québec, 2015 QCCQ 7517 - another recent decision dealing with the provincial residency of a trust.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2015

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ryan Walker
Ehsan Wahidie
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions