Trusts need to watch out

The federal government has allocated significant additional funds to the CRA to permit it to enforce better compliance. The CRA has targeted family trusts (among other things).

The CRA’s audit process for a trust involves accumulating documentation and information about many details related to (1) the trust’s setup and administration, including its bank statements; (2) evidence regarding the subscription of shares by the trust; (3) the payment of trust expenses; and (4) trustees’ resolutions concerning the payment of income and capital gains to beneficiaries.

The CRA seems to be particularly concerned about trusts that realize gains where the capital gain exemption might be available to beneficiaries. The CRA auditors are scrutinizing whether the shares in question were “qualified small business corporation shares” and whether the proceeds received ended up in the hands of each beneficiary who claimed the exemption for the corresponding gain. On this point, please see my comment on Laplante.

Jeanne Cheng, “The CRA’s Audit Crackdown on Family Trusts” (Oct 2019) 19:4 Tax for the Owner-Manager.

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