Neal Armstrong has written a wonderfully sarcastic case comment on Dimane Enterprises Ltd. v R, 2014 TCC 334.
In Dimane, father caused Opco to establish an EPSP (supposedly), but amounts from the plan that were supposed to be paid to father’s children ended up in his bank account instead. As a result, Justice D’Arcy held that the EPSP was a sham. Mr Armstrong notes that “This may be relevant to the question whether a family trust has distributed income to children beneficiaries (see 2013-0475501I7 F, Langer Family Trust, Degrace Family Trust, 2011-0428661E5).”
Justice D’Arcy, in Dimane, wrote at ¶43 “In my view, my finding that the Appellant paid the amounts in question to Richard Arab is sufficient to support a finding that the EPSP was a sham.” I wonder whether that’s right, at least in the case of a trust. If a trustee allocates an amount to a beneficiary but then, instead of paying the amount to the beneficiary, pays the amount to himself instead, it doesn’t follow that the trust suddenly becomes a “sham”. Rather, the payment is a breach of the trustee’s fiduciary obligations for which he can be held accountable to the beneficiaries. Even if the diversion of funds is an innocent error, it seems that the trustee is still accountable to the beneficiaries for the diverted funds under the doctrine of resulting trust.
