Garron Decision Upheld by Tax Court of Canada

December 2nd, 2010.

The Tax Court of Canada (TCC) decision in Garron, now known as St. Michael Trust Corp., was upheld in a recent Federal Court of Appeal (FCA) decision that serves as a warning that residency issues for trusts — and for corporations — should be taken seriously.

The decision concerned the residency of two trusts, and held that similar considerations should apply as are required to determine the residency of a corporation.

The FCA agreed with the TCC’s determination that the trusts at issue were resident in Canada and not Barbados since, among other reasons, the trusts’ real decision makers were their beneficiaries, who were Canadian residents. Therefore, the capital gains realized by the trusts were taxable and not treaty exempt. There is also a lengthy discussion in obiter of other issues in the event the trusts were resident in Barbados, including the application of section 94 of the Income Tax Act, the application of the Canada-Barbados Tax Treaty to exempt the gains and the application of the General Anti-Avoidance Rule (GAAR).

Had residency in Barbados been successfully established for the trusts, the tax planning would have been successful, i.e., the gains would have been exempt under the treaty and the GAAR would not have applied.

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Author: Warren Orlans

Welcome to the blog for Intaxicating Tax Services, www.intaxicating.ca. My name is Warren Orlans and I am the owner of inTAXicating Tax Services. With over 17-years experience in the taxation industry, 11 of them working for the Canada Revenue Agency (CRA), and the rest working in the private sector at large financial institutions responsible for resolving tax issues for corporations and individuals and the Canadian lead for a large US bank on FATCA implementation. My tax career began pretty much out of university at the CRA, in Collections, where I moved up, across, over and up again through their division with stops in Enforcement, Taxpayer Relief (then Fairness), Audit, Directors Liability, Training, Mentoring, GST, GST/HST, Payroll, Corporate Tax, Personal tax, and probably much more. If you have a collections, compliance or audit issue with the CRA, MRQ, IRS or with the CRTC, WSIB or any aspect of those agencies, inTAXicating is the place you need to contact. inTAXicating Tax Services has strategic partnerships which allows my team to include amazing tax lawyers, insolvency practitioners, mortgage brokers, debt counselling experts and much more. When dealing with governments, knowledge is power. We possess strong understanding of government so we know what the next step is before the government does. When you have a collections problem with the CRA, do you hire a graphic artist? No, you get a former collector who trained the staff, and who worked as a resource officer for 5 years. Then you know you are on the right track to resolving your tax problem(s). Others offer suggestions. We offer solutions! info@intaxicating.ca

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