Canada income tax trusts are NOT real trusts. This is because our tax research concludes Canada deems the trust parties are handling Canada’s money. Therefore, they already have trust relationships with Canada. It seems this is why Canadian laws can control, and tax, such trust property.
A Canadian Income Tax Act trust is not a real trust!
Trusts originated for protecting against land seizures – and also for avoiding taxes. This is because a real trust splits the title. The trustee has legal title (legal ownership). The beneficiary has beneficial title (legal use). The trustee and the beneficiary are different people. The title, split between two people, makes it difficult to tax or seize such trust property. This is because trustees own the trust property, but don’t have it; beneficiaries get to use the trust property, but don’t legally own it.
“Apu’s Theory” is our research on how Canada’s Income Tax Act (“ITA”) seems to really work. Since the ITA taxes trusts, for our theory to have merit, it has to explain how the ITA treats trusts, such as:
Canadian law books state trusts are contracts between grantors and trustees. As such, they are normally not subject to laws or even the Charter. This means such trusts cannot be a legal person. And since trusts are about property rights, if you choose, your trust can then be under Provincial jurisdiction. So how can Canada’s ITA deem a trust as a federal legal person, as an ITA “individual”?
Applying Apu’s Theory, Canada can do this if grantors and/or trustees are handling trust income as Canada’s “public money”.
Being ITA “individuals”, ITA trusts must file tax returns. But why, unlike other ITA “individuals” (even if it has no income), do they must file information returns?
This makes sense if the trust property is deemed as Canada’s public money. The owner, Canada, wants information on who is handling its property. It also wants information on the contractual relationships between such trust parties.
Canada can also deem the ITA trust property as belonging to any trust party. But, from earlier, that is normally not possible if it is a real trust.
However, since Canada can deem any trust party as handling that trust’s income as Canada’s public money, it makes sense Canada can also deem the trust property to belong to any such trust party.
A Canada income tax “trust” is NOT a real trust. Apu’s Theory offers plausible explanations of how the ITA treats ITA trusts. In conclusion, it seems ITA trust treatments corroborate Apu’s Theory.