Recent International Tax Case: Garron Family Trust v. The Queen 2009

Par Robert Robillard - 23 juin 2014

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In Garron Family Trust v. The Queen, 2009 TCC 450, the « Trusts sought a return of the amounts withheld, claiming an exemption from tax » pursuant to the tax treaty between Canada and Barbados. But CRA took the position that the applicable exemption did not apply since the Trust was a Canadian resident for income tax purpose. CRA also assessed the beneficiaries of the trusts.

The appeal pertaining to the Garron Familiy Trust was dismissed. The appeals on the assessments of the other four Canadian residents were allowed.


« [2] In 1998, in the course of a reorganization of the share structure of PMPL Holdings Inc. (“PMPL”), two trusts (“Trusts”) with Canadian beneficiaries were settled by an individual resident in the Caribbean island of St. Vincent. The sole trustee of each Trust was a corporation resident in Barbados.

[3] As part of the reorganization, the Trusts subscribed for shares of newly-incorporated Canadian corporations and the corporations in turn subscribed for shares of PMPL. These transactions were effected at nominal consideration.

[4] In 2000, as part of an arm’s length sale of PMPL, the Trusts disposed of the majority of the shares that they held in the holding companies. Capital gains of over $450,000,000 were realized.

[5] Amounts on account of potential tax on the capital gains had been remitted to the government pursuant to the withholding procedures in section 116 of the Act. In income tax returns filed for the 2000 taxation year, the Trusts sought a return of the amounts withheld, claiming an exemption from tax pursuant to 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 Capital (the “Treaty”).

[6] The exemption relied on, Article XIV(4) of the Treaty, provides:

  • 4. Gains from the alienation of any property, other than those mentioned in paragraphs 1, 2 and 3 may be taxed only in the Contracting State of which the alienator is a resident.
[7] The Minister has taken the position that this exemption does not apply, and has issued assessments to each of the Trusts in respect of the gains.

[8] In addition to assessing the Trusts, the Minister also assessed four Canadian residents with respect to the same gains. These persons all had interests in PMPL, either directly or through a holding company, prior to the 1998 reorganization. In these reasons, this group will be referred to collectively as the “Other Appellants.”

[…] [127] According to the appellants, Thibodeau establishes that a trust is resident in the jurisdiction where its trustee resides. In this case, there is no dispute that St. Michael, the trustee, is resident only in Barbados.

[128] Further, it is submitted that the court in Thibodeau concluded that the central management and control test (which has historically been applied in determining the residence of corporations) is inapplicable to trusts.

[129] In the alternative, the appellants submit that the evidence establishes that the management and control of the Trusts was in fact with St. Michael.

[130] The Minister, on the other hand, submits that Summersby and Fundy were controlled by Mr. Dunin and Mr. Garron, respectively. St. Michael was a compliant trustee, it is submitted, that implemented decisions made by or on behalf of Mr. Dunin, in respect of Summersby, and by or on behalf of Mr. Garron, in respect of Fundy. »


The appeal pertaining to the Trust was dismissed. The appeals on the assessments of the other four Canadian residents were allowed.

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

Garron Family Trust v. The Queen, 2009 TCC 450

Fiducie familiale Garron c. La Reine, 2009 CCI 450

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

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