It is becoming increasingly common for wealthy people immigrating to Canada to inquire about establishing non-resident trusts prior to coming to Canada in order to take advantage of the five-year tax holiday available under section 94(1) of the Income Tax Act. Professionals are of course all to eager to assist, happily describing the tax savings available in setting up such entities.
The Federal Court and Federal Court of Appeal decisions in Antle v. Canada (2010 FCA 280 and 2009 TCC 465) (“Antle“), however, suggest that such professionals should also make sure that their clients understand the nature of what a trust is.
Both the Federal Court and the Court of Appeal found that an off-shore trust did not exist because a lack of certainty of intention, a requirement for setting up a trust.
At paragraph 49 of its decision, the Federal Court noted that (emphasis added):
I reach the inevitable conclusion that [the appellant] did not truly intend to settle shares in trust with [the trustee]. He simply signed documents on the advice of his professional advisers with the expectation the result would avoid tax in Canada. I find that on December 14th, he never intended to lose control of the shares or the money resulting from the sale. He knew when he purported to settle the Trust that nothing could or would derail the steps in the strategy. This is not indicative of an intention to settle a discretionary trust. Frankly, I have not been convinced [the appellant] even fully appreciated the significance of settling a discretionary trust, beyond an appreciation for the result it might provide. I conclude that his actions and the surrounding circumstances cannot support a conclusion that signing the Trust Deed, as worded, reflects any true intention to settle shares in a discretionary trust. I do not find that [the appellant] is saved by the language of the Trust Deed itself, no matter how clear it might be. It does not reflect his intentions.
Although Antle did not apply to an immigration trust, it is easy to see such a scenario developing in the immigration trust context. Simply signing documents on the advice of “professional advisers ? Not appreciating what one is entering into and signing? People who are moving to a new country with a new legal system and relying on experts to best position themselves in that system understandably sign documents without fully understanding them all the time.
What Antle reminds these individuals, as well as their advisers, is that it is important that immigrants setting up an immigration trust not only understand why they are doing something (the tax benefit), it is important that they understand what they are doing (transferring legal title of property to trustee for the benefit of a beneficiary).
The reason that it is important that an immigrant understand the nature of a trust when establishing an immigration trust is because no matter how flawless the trust document is, the trust document alone does not determine whether the certainty of intentions is met. Rather, as the Federal Court of Appeal noted in Antle, a contextual approach that considers all the factors is necessary.
In short, make sure that you understand the nature of a trust before putting your assets into one, because failure to do so may result in all those professional fees to set up the “perfect trust deed” may be wasted.