The Supreme Court of Canada today released its judgment in St. Michael Trust Corp. et al v. The Queen, 2012 SCC 14, denying the taxpayer’s appeal and holding that the appellant trusts, both of which had a Barbados resident trustee and were formed under the laws of Barbados, were resident in Canada and subject to Canadian tax on the gains realized on the sale of certain shares.
This decision confirms that the test to be applied in determining the residency of a trust is the common law test of central management and control, which has long been the test to determine the residence of a corporation. The Court rejected that a trust is necessarily resident where its trustees are resident, which until now had generally been accepted in Canada as the test to determine trust residency. The Court held that there are many similarities between a corporation and a trust that justify the application of the central management and control test to determine the residence of a trust.
Louise Summerhill, Co-Chair of the Aird & Berlis LLP Tax Litigation Group, won the appeal in the Tax Court of Canada on behalf of Velcro Canada Inc. The CRA had argued that its Dutch parent, which was paid royalties for the use of intellectual property, was not the beneficial owner of the royalties and thus that the Canada-Netherlands Tax Treaty would not apply so that withholding tax was payable at the rate of 25%.