Trust Residence Disputes: How Litigation Choices Shaped Fundy Settlement

Fundy Settlement shows how expert credibility, timing of arguments, and central management and control reshaped a landmark trust residence dispute.
Trust Residence Disputes: How Litigation Choices Shaped Fundy Settlement
Trust Residence Disputes: How Litigation Choices Shaped Fundy Settlement
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Key Takeaways

  • Expert credibility matters: CRA’s independent, balanced expert persuaded the Court, while the taxpayer’s conflicted expert undermined its case.

  • Evidence must stand on its own: Expert reports based on untested assumptions carried little weight, leaving the Court with no credible alternative to CRA’s position.

  • Timing matters: CRA nearly lost a key point by raising it late, but the Court upheld its overall case because the trust’s Canadian-based management and control was clear.

The Situation

Two Barbados trusts were settled as part of a corporate reorganization intended to shelter capital gains from Canadian tax. A Barbados trustee was appointed, while Canadian-resident beneficiaries and advisors played active roles in managing the trusts. When the trusts disposed of shares in Canadian holding corporations, the purchaser withheld approximately $152 million in potential Canadian tax. The trustee sought a refund under the Canada–Barbados Tax Treaty, arguing the trusts were Barbados residents. CRA rejected this position, asserting that central management and control was exercised from Canada. All levels of court agreed with CRA, and the Supreme Court of Canada confirmed the application of the corporate central management and control test to trusts.

What Made the Difference

The decisive factor was judgment in litigation choices.

CRA retained an independent, qualified expert whose balanced report reinforced its position. The taxpayer’s expert had longstanding ties to the parties and presented a narrow, advocacy-driven report that undermined credibility. At the same time, CRA risked losing ground by raising a key argument too late in the process, but the courts were ultimately persuaded that management and control lay with Canadian beneficiaries.

The Supreme Court’s adoption of the corporate “central management and control” test for trusts framed the entire dispute, and the taxpayer’s reliance on form (a Barbados trustee) could not overcome the substantive finding that real decision-making took place in Canada.

The Signal for Business Leaders

Fundy Settlement illustrates how courtroom outcomes often turn less on the legal form of a structure and more on how its substance is framed and supported. In high-stakes disputes, credibility in expert evidence and disciplined litigation choices frequently tip the balance.

The broader pattern is clear: when central management and control point to Canada, courts will treat trusts like corporations and apply the same test to determine where real decision-making occurs. In uncertain disputes, judgment in framing substance and managing credibility is the lever that produces defensible outcomes.

Case reference: Fundy Settlement v. Canada, 2012 SCC 14

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