Recent International Tax Case: Fundy Settlement v. Canada 2012

By Robert Robillard - 7 July 2014

This blogpost originally appeared on

In Fundy Settlement v. Canada, 2012 SCC 14, [2012] 1 SCR 520, the taxpayer claims an exemption from tax pursuant to the tax treaty between Canada and Barbados. Appeal filed to the Supreme Court of Canada. The CRA takes the position that the applicable exemption does not apply since the Trust is a Canadian resident for income tax purpose.

The trust is indeed found to be a Canadian resident. The appeal is dismissed.

The Case

“[1] The Court — St. Michael Trust Corp. (“St. Michael”) is the trustee of two trusts, the Fundy Settlement and the Summersby Settlement. The trusts were settled by an individual resident in St. Vincent in the Caribbean. The beneficiaries are residents of Canada. St. Michael is a corporation resident in Barbados.

[2] When the trusts disposed of shares they owned in two Ontario corporations, the purchaser remitted some $152 million to the Minister of National Revenue as withholding tax on account of Canadian tax from capital gains realized by the trusts on the sale of the shares.

[3] St. Michael sought return of the withheld amount based on an exemption from Canadian capital gains tax under the Agreement Between Canada and Barbados for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital, Can. T.S. 1980 No. 29 (incorporated into Canadian law by the Canada-Barbados Income Tax Agreement Act, 1980, S.C. 1980-81-82-83, c. 44, s. 25). Under the treaty, tax would only be payable in the country in which the seller was resident. St. Michael claimed that because it was resident in Barbados, the trusts were resident in Barbados. As a result, there would be no basis for withholding tax in Canada.

[4] The Minister of National Revenue was of the opinion that the trusts were resident in Canada and that the withheld tax was properly payable.

[5] St. Michael’s appeal from the Minister’s reassessment to the Tax Court of Canada was unsuccessful 2009 TCC 450 (CanLII), (2009 TCC 450, [2010] 2 C.T.C. 2346), as was its further appeal to the Federal Court of Appeal 2010 FCA 309 (CanLII), (2010 FCA 309, 411 N.R. 125). It was granted leave to appeal to this Court.

[6] The issue in this case is the residence of the Fundy and Summersby trusts. St. Michael says the residence of the trusts is the residence of the trustee, which is Barbados. The Minister says the trusts are resident in Canada because the central management and control of the trusts was carried out by the main beneficiaries, who were resident in Canada. On the facts as determined by Woods J., the Tax Court judge, St. Michael is resident in Barbados while the central management and control of the trusts was carried out in Canada by the main beneficiaries of the trusts.”

The decision

“[16] We [the SCC] agree with Woods J. that adopting a similar test for trusts and corporations promotes “the important principles of consistency, predictability and fairness in the application of tax law” (para. 160). As she noted, if there were to be a totally different test for trusts than for corporations, there should be good reasons for it. No such reasons were offered here.”

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

Fundy Settlement v. Canada, 2012 SCC 14, [2012] 1 SCR 520

Fundy Settlement c. Canada, 2012 CSC 14, [2012] 1 RCS 520

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

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