New frontier

Alex Klyguine, in “Income Splitting After the New Private Corporation Proposals: Salaries Paid to Family Members” 8:1 Canadian Tax Focus (February 2018), discusses Gabco Limited v MNR, 68 DTC 5210 (Ex.┬áCt.)), and suggests that “the boundaries of the reasonableness test may become the new frontier for income splitting in private corporations.” What is “reasonable”? Fair market value is not necessarily the relevant standard. In Gabco, the court wrote:

It is not a question of the Minister or this Court substituting its judgment for what is a reasonable amount to pay, but rather a case of the Minister or the Court coming to the conclusion that no reasonable business [person] would have contracted to pay such an amount having only the business consideration of the appellant in mind.

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