The GST/HST Treatment of a Trust as a Separate Legal Person
Applying the GST/HST rules to trusts can be complicated. At common law, a trust is not a separate legal person; rather, "trust" refers to the relationship between a trustee and beneficiary in relation to trust property. In contrast, subsection 123(1) of the Excise Tax Act defines a "person" to include a trust, thereby conferring a separate identity on trusts for GST/HST purposes. This mismatch has sometimes caused uncertainty about how the legislation applies.
Deeming a trust to be a separate person does not fit particularly well within the GST/HST regime. The GST is a transactional tax--it generally requires a "supply" of property and services, a "supplier," and a "recipient." But a trust, at law, acts only through its trustees; the trust itself is incapable of entering into contracts or otherwise incurring liabilities. So how can a trust make or receive a supply?
For the tax to be legally levied, the "statutory fiction" needs to be complete--that is, all of the elements required to trigger the tax must also be deemed by the legislation. As stated in W.R. McRae Company Limited v. The Queen ((1994), 2 GTC 7131 (FCTD)), "[I]n order to levy a tax on the basis of a deeming provision, the legislator must effectively deem every event the occurrence of which is in fact required to trigger the tax." A similar principle was expressed by the court in State Farm ( GSTC 35 (TCC)): while a deeming provision (such as the deeming of a trust to be a person for GST/HST purposes) "creates a statutory fiction, or, if you will, an artificial presumption . . . it does not direct us to pursue that presumption to its logical (or illogical) conclusion." Thus, one must still determine whether all the elements required to trigger the tax are present.
Paragraph 267.1(5)(a) attempts to fill in this gap by deeming anything done by a trustee to be done by the trust. For example, if a trustee enters into an agreement to receive supplies, the trust is deemed to be the person receiving the supplies under the arrangement and is liable for any applicable GST/HST.
What if there is no arrangement with the trustee for supplies? So far, the legislative approach has been to create a special rule to fill the gap in each circumstance where this situation arises. In particular, if an employer acquires supplies or incurs internal expenses in relation to its registered pension plan and that plan is governed by a trust, new section 172.1 deems the employer to have made a supply of services to the trust. Similarly, if an insurer deducts an amount from its segregated fund (which is deemed to be a trust), section 131 deems the insurer to have supplied services to the fund (The Maritime Life Assurance Co., 2000 CanLII 16374 (FCA)).
Who is the "recipient" of a supply? The answer may be relevant in determining the supply's GST/HST status--for example, certain supplies to non-residents are zero-rated, and supplies to provincial Crowns and agencies are eligible for a GST/HST rebate. If payments are made out of trust funds, taxpayers must consider whether the true "recipient" of the supply is the trust as a separate person or some other person.
Simon Thang and Jung Ah Kwon
KPMG LLP, Toronto
[email protected] and [email protected]