2016-0634911C6 2016 STEP–Q7 Deemed Resident Trust and CCPC Status

Principal Issues: Where all the shares of a Canadian corporation are owned by a factually non-resident trust, can the Canadian corporation be considered a CCPC if the factually non-resident trust is deemed resident in Canada by virtue of section 94.

Position: No.

Reasons: Section 94 deems the non-resident trust to be resident in Canada only for specific purposes one of which is not for determining the CCPC status of Canadian corporations owned by the non-resident trust. Furthermore, even though the non-resident trust is deemed resident in Canada, the central management and control of the non-resident trust will continue to be exercised by non-residents.

Author: Campbell, Katie
Section: 125(7); 94(3)

STEP CRA Roundtable – June 10, 2016

Question 7. Deemed Resident Trust and CCPC Status

A trust which meets the conditions of section 94 is considered resident for certain purposes of the Income Tax Act (the “Act”).  It is generally referred to as a deemed resident trust, but it is in fact not considered resident for all purposes of the Act and certain rules are quite different from those applicable to a resident trust (for example, withholding tax and the deduction for distributions to beneficiaries who are non-resident).

Our question concerns a situation where a deemed resident trust controls a Canadian corporation. Since subsection 94(3) does not state that a deemed resident trust is considered resident for purposes of determining control, we would imagine that the corporation would not be considered Canadian controlled.  Can CRA confirm this?

CRA Response

We have assumed for the purpose of our response that you are asking us to confirm whether a Canadian corporation (“Opco”) controlled by a deemed resident trust (the “Trust”) would be considered a Canadian-controlled private corporation (“CCPC”) as defined in subsection 125(7).

In order to be deemed resident by virtue of section 94, a trust must be a factually non-resident trust.  In order for a trust to be factually non-resident the central management and control of the trust must be exercised outside of Canada.  It is our view that where a factually non-resident trust holds the majority of the voting shares of a corporation, non-resident persons generally exert de jure control of that corporation.

In order for Opco to be a CCPC, Opco must not be controlled directly or indirectly in any manner whatever by one or more non-resident persons, one or more public corporations, or any combination of non-resident persons and public corporations.  Therefore, Opco will not be a CCPC if any non-resident persons or public corporations or a combination thereof have de jure or de facto control of Opco.

The question then becomes whether Opco can be considered to be a CCPC if Trust is deemed to be resident in Canada by virtue of section 94 even though non-resident persons exert de jure or de facto control over Opco.  Where, in a particular year, subsection 94(3) applies to a factually non-resident trust, the trust is deemed resident in Canada throughout the particular year for certain specified purposes described in paragraph 94(3)(a). Subsection 94(3) does not deem Trust to be resident in Canada for the purpose of applying the definition of CCPC found in subsection 125(7).

Therefore, we can confirm that Opco will not be considered a CCPC as a result of the fact that Trust is deemed resident in Canada by virtue of section 94.

2016-063491
Katie Campbell

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