Recent International Tax Case: St. Michael Trust Corp. v. Canada 2010

By Robert Robillard - 30 June 2014

This blogpost originally appeared on

In St. Michael Trust Corp. v. Canada, 2010 FCA 309, the taxpayer claims an exemption from tax pursuant to the tax treaty between Canada and Barbados. Appeal filed to the Federal Court of Appeal. CRA takes the position that the applicable exemption does not apply since the Trust is a Canadian resident for income tax purpose.

The appeal is dismissed.


“[1] St. Michael Trust Corp., in its capacity as the trustee of the Fundy Settlement and the Summersby Settlement (the “Trusts”), has been assessed under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) for the 2000 taxation year. The assessed tax arises from capital gains realized by the Trusts on the disposition of the shares of two Canadian corporations at a time when, according to the Crown, the Trusts were resident in Canada. St. Michael Trust Corp. appealed the assessments to the Tax Court of Canada. The appeals were dismissed by Justice Woods 2009 TCC 450 (CanLII), (2009 TCC 450). St. Michael Trust Corp. now appeals to this Court. For the reasons that follow, I have concluded that these appeals should be dismissed with costs.

[…] [51] […] I agree with Justice Woods that a central management and control test, as described below, should be applied in determining the residence of the Trusts. In my view, it was reasonably open to her to conclude on the basis of the record that for the purposes of the Income Tax Act, the Trusts were resident in Canada in 2000.

[…] [54] As to the residence of a corporation, it was determined over 100 years ago that in considering that question, the jurisprudence relating to the residence of an individual was instructive. In the leading case of De Beers Consolidated Mines Ltd. v. Howe, [1906] A.C. 455, Lord Loreburn said this (at page 458):

In applying the conception of residence to a company, we ought, I think, to proceed as nearly as we can upon the analogy of an individual. A company cannot eat or sleep, but it can keep house and do business. We ought, therefore, to see where it really keeps house and does business. An individual may be of foreign nationality, and yet reside in the United Kingdom. So may a company. Otherwise it might have its chief seat of management and its centre of trading in England under the protection of English law, and yet escape the appropriate taxation by the simple expedient of being registered abroad and distributing its dividends abroad. The decision of Kelly C.B. and Huddleston B. in the Calcutta Jute Mills v. Nicholson and the Cesena Sulphur Co. v. Nicholson [(1876) 1 Ex D. 428], now thirty years ago, involved the principle that a company resides for purposes of income tax where its real business is carried on. Those decisions have been acted upon ever since. I regard that as the true rule, and the real business is carried on where the central management and control actually abides.

It remains to be considered whether the present case falls within that rule. This is a pure question of fact to be determined, not according to the construction of this or that regulation or bye-law, but upon a scrutiny of the course of business and trading.

[…] [57] There is very little jurisprudence relating to the determination of the residence of a trust for tax purposes. Justice Woods reviewed the jurisprudence and concluded, correctly in my view, that there is no case law establishing a single test for determining the residence of a trust. She also concluded that “the judge-made test of residence that has been established for corporations should also apply to trusts, with such modifications as are appropriate” (reasons, paragraph 162). I agree with her, substantially for the reasons she gave.

[…] [66] Justice Woods concluded that St. Michael Trust Corp. was not exercising the main powers and discretions of the trustees under the trust indentures. Rather its true role was “to execute documents as required, and to provide incidental administrative services”, and it was not expected to “have responsibility for decision-making beyond that” (at paragraph 189). Rather than exercising its powers and discretions under the trust indentures, St. Michael Trust Corp. would default automatically to the recommendation of Mr. Dunin and Mr. Garron. This was “understood to be the arrangement from the outset” (at paragraph 194). She found that it was Mr. Dunin and Mr. Garron “who made the substantive decisions respecting the Trusts”, not St. Michael Trust Corp. (at paragraph 252).”

To see the full case click here. Aussi disponible en français sur ce lien.

St. Michael Trust Corp. v. Canada, 2010 FCA 309

Fundy Settlement c. Canada, 2010 CAF 309

Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard “at”

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