Regulation 2601 - Residents of Canada

Structuring so that decisions are made in a different jurisdiction (pp. 692-3)

Once the identity of the person who has central management and control is ascertained, the residence of the trust can be resolved by identifying the place where J that person exercises the powers constituting central management and control. Typically, this would be the place in which the person exercising these powers is resident, but that will not necessarily be the case. In a situation where very little management or control of trust property is required (as might be the case if substantially all of the assets of the trust consist of preferred shares of a private corporation), it might be possible for the person who has central management and control to ensure that central management and control is exercised in a province or country other than the province or country in which that person resides. One must caution, however, that this will require the decision making in connection with the trust property to be taken in a more formal manner than might otherwise be the case.

Alternative ordinary-location-of-decision-makers test (p. 693)

An argument could be made that the comments of the courts in Garron that the determination of central management and control is factually driven, and that there is a "line to be drawn," combined with the comments of the courts that the central management and control test for trusts is "similar" to the central management and control test for corporations, means that the central management and control test is to be applied as a de facto control test. In this interpretation of the decisions in Garron, the actual act of making decisions and the place where those decisions are made is disregarded, while paramount importance is placed on the ordinary location of the persons who effectively control the decision making for the trust.

Inappropriateness of ordinary-location test (p. 694)

I strongly disagree…

The use of a formalistic central management and control test for corporations and a de facto central management and control test for trusts would undermine the neutrality principle upon which the decisions in Garron are premised. ...

[I]f the courts intended trust residence to be based on the place of residence of the individual with de facto control, as opposed to the place where decisions are made, the courts would know how to articulate such a test.

Application of corporate central management and control test (pp. 694-5)

[O]nce the elements of control in respect of the trust property have been ascertained, it is the place from which that control is exercised that is relevant, and not the day-to-day location of the "controller." If it can be proved that control is exercised at a meeting in a particular jurisdiction, then, by analogy to a corporation and the making of decisions in the place where the board of directors meets, central management and control is situated in that particular jurisdiction. Again, this may require a more formal decision-making process…

[T]he question of provincial residence should be resolved by answering three questions of fact:

1. What bundle of rights constitutes control of the property owned by the trust?
2. Who is the person exercising or dictating the exercise of the rights that constitute control of the trust property?
3. From where does this person exercise those rights or dictate the exercise of those rights on the last day of the taxation year?

If the answer to question 3 is that the rights are exercised in the particular province on the last day of the taxation year, the trust is resident in that province in the year.