In recent years, many trusts have been created for tax planning
purposes. A trust is a patrimony created by an individual who
donates property (the settlor). When a trust is constituted, one or
several trustees are appointed to administer the affairs of the
trust and hold its assets. Quite often, a professional will agree
to act as a trustee of a trust created for their client. The
involvement of this professional trustee in the day-to-day business
of the trust is sometimes limited, which can have serious
consequences for the professional trustee.
In a recent criminal case, Sous-ministre du revenu du
Québec c. Roy Gordon Harris, Mr. Harris was
charged with at least 18 counts of fraud by the sous-ministre du
revenu du Québec, under the Tax Administration Act
("TAA"), for having willfully fail to
file the returns of several trusts. Mr. Harris acted as the trustee
of these various trusts (the "Harris
Trustee") and it is in this capacity that he was
charged by the Attorney General of Québec.
In summary, the tax avoidance scheme in which the Harris Trustee
appears to have played a role consisted of a first transfer of real
property between beneficiaries and trustees followed not long after
by a second transfer of property between the trustees involved and
a third party. Subsequently, the proceeds from the sale, after the
second transfer, was distributed between the beneficiary or
beneficiaries of the trust and the Harris Trustee.
It would seem that no tax returns were filed by the trusts
involved in the scheme and that, consequently, the proceeds of the
sale of property were not reported to the Agence du revenu du
Québec (the "ARQ"), as provided
for in Quebec's applicable tax laws. In addition, searches were
conducted by the ARQ in the offices of the notaries implicated in
these transfers of property. On February 22, 2012, Mr. Harris
pleaded guilty to only one count of fraud and was fined $37,218 as
a result. All other counts were dropped for unknown reasons,
possibly after an agreement was reached between the parties.
In this particular case, the Harris Trustee appears to have been
closely involved in the affairs of the trust. What would happen if
a professional was in fact a silent trustee and the tax return
preparer of this trust? Could that professional be subject to legal
action for the trust's tax debts or be criminally charged for
negligence? What is the extent of a professional trustee's tax
We increasingly recommend that trustees set up an internal
control system for the trust, similar to the one that currently
applies to business corporations. However, it is preferable that a
trustee regularly monitors the affairs of a trust, so as to avoid
any future problem with tax authorities.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The US Government Accountability Office recently released a report that encouraged the Internal Revenue Service to seek out off-shore filers who have circumvented the IRS’s recent Voluntary Disclosure programs in favor of "quiet disclosure."