How will new Canadian tax and trust ruling impact Barbados offshore financial industry?

Canadians are some of the largest users of our Bajan offshore financial resources

An interesting article came in this morning via an email from reader “Frank”. I’m not sure what the full implications are for Barbados, but the article in the Ottawa Citizen talks like things just changed in a big way for Offshore Trusts in Barbados that are run by Canadians. Here are a few excerpts…

Canadian Court just changed the rules after 30 years!

The new rule is that a trust with multiple trustees resides where a majority of the trustees reside if the trust instrument permits majority decisions on all matters within the discretion of the trustees and the trustees actually discharge their fiduciary duties.

(snip)

The issue before the Tax Court in Garron was whether a Barbadian Trust was resident in Barbados or in Canada. One determines this issue by looking at where central management and control of the trust actually resides. In Garron, Canadian residents made the key decisions on the trust’s investments and distributions. The Barbados trustee performed mere administrative functions. The Barbados trustee had minimal, if any, involvement in the affairs of the trusts other than to act as functionaries in the execution of agreements and in administrative, accounting and tax matters.

The trustee was an arm of an accounting firm formed to provide services that were complementary to its core practice areas, and in particular tax services. Although the accounting firm had significant expertise in accounting and tax matters, it was unlikely from the evidence that they had expertise in managing trust assets.

The Tax Court looked at the substance of the offshore structure and concluded that the trust was resident in Canada. Hence, it would be taxable on its worldwide income in Canada.

The details of offshore structures set up in the last 30 years warrant re-examination. Small details can trip up even the most sophisticated plans when courts move the goal posts.

…read the full article at The Ottawa Citizen Courts move offshore trust goal posts

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6 Comments

Filed under Barbados, Business & Banking, Offshore Investments

6 responses to “How will new Canadian tax and trust ruling impact Barbados offshore financial industry?

  1. central control and mangement

    This tax structure issue has always been front and centre.

    There are a number of competent Canadian expats and a few very competent Barbadian professionals who could have easily been recruited to give the Trust a majority of control and management in Barbados.

    It would be very much in the interest of Barbados to stop procrastinating on some of these expat Canadians application’s for immigration, some of whom have spent many years on the island.

  2. Getting harder to live

    Obama has been in the forefront of challenging the offshore banking structures in Europe and the Caribbean. Expect more trouble from the US to back up what is happening in Canada. Governments are desperate for tax revenues and the “anti-terrorist” computer financial records sharing across borders makes it hard for expats to live without having official residence status in the countries like Barbados that are happy to have the money coming in but don’t want to grant permanence.

    I’ve been trying to get some kind of official status in Barbados for 3 years but can’t make it to first base. I enjoy Barbados but I will be moving on. I can’t live like this anymore as I am retired and need some stability that Barbados doesn’t want to provide. Costa Rica looks good and I will be checking that country out in March.

  3. Mogli

    The decision making test applies to all those companies etc, to determine whether control is exercised here or in Canada.

    Simply put, what such entities have to do is ensure that the expertise resides here in Barbados.

    There are very qualified Barbadians capaple of performing the role of investment manager, especially as most investment managers, whether Barbadian, American or Canadian, use professional firms in NY / London to assist in their decisions anyway, it is not rocket science.

    As ‘central control and management’ above says, put the control in the hands of those resident here.

    The importance of the decision is the words ‘substance of the offshore structure’.

    It is simple really.

  4. Bad Man Saying Nuttin

    It may actually bode well for Barbados if you know what is going on.
    Instead of having one Barbadian resident trustee companies may now need 5 or 7 in order to garner the tax benefits of being resident in Barbados.
    Those benefits are considerable , more than enough to offset the increased standard of residency.

  5. making things harder

    For a country that does not have minimum standards of enforcement such as the delivery of audited statements by its own government corporations and bodies and for professionals who allow this to happen, money will not be forthcoming unless a lot of these professional ex pats are resident in Barbados or are citizens.

    It is extremely short sighted and bordering on insanity for someone like ” Getting Harder to Live”
    to be delayed by a bureaucracy which is stopping the free flow of capital into a country which desperately needs it. Investors will simply move on to countries with a better attitude and the barrel will become smaller.

  6. julian Karls

    Why Barbados and not the Bahamas for offshore banking and stability of status?