Jul 19, 2017
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“The CRA has decided to actively audit domestic inter vivos trusts.”
It seems that the Canada Revenue Agency (the CRA) has decided to actively audit domestic inter vivos trusts (trusts created by a living person, as opposed to ones created on death in one’s will). While trusts are commonly used in estate planning, they are also established to facilitate income splitting with lower-income spouses and children. These income-splitting trusts seem to be the CRA’s primary target.
This initiative coincides with court cases challenging the effectiveness of “income splitting” trusts as well as the CRA’s audit of the “kiddie tax” (income-splitting tax). We have always advised clients to ensure not only that their trusts are created properly, but also that they are administered diligently. Some of the compliance practices that should generally be in place for inter vivos trusts include:
A properly constituted and administered inter vivos trust is still an acceptable and effective tax planning vehicle. However, ignoring the compliance and administrative requirements can jeopardize the tax effectiveness of these trusts.
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The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.