June 21, 2010 blog (yes, that's over two years ago),
discussed the CRA's domestic trust audit project. Our
February 9, 2011 blog discussed the CRA's high net worth
audit initiative (or what the CRA calls the "Related Party
Initiative" or "RPI" for short). These are two very
high profile audit initiatives undertaken by the CRA. What is the
status of these projects? Good question.
It's difficult to answer the above question with a lot of
certainty. The CRA has previously announced that the RPI is
targeted at private persons who have more than 30 entities in their
corporate group (including corporations, trusts or partnerships)
and appear to have a net worth of more than $50 million. A lot of
questions arise as to how the CRA is identifying such people but
the CRA has been tight-lipped. At the CRA
Roundtable at the Society of Trust and Estate Practitioners
recent National Conference held on June 12, 2012 in Toronto, ON,
the CRA stated they have so far tentatively identified
approximately 600 individuals that they intend to review. It seems
like the CRA is still at the early stages of carrying out the RPI
mandate but that is pure speculation. For anyone who meets the
earlier mentioned criteria, the message has to be loud and
clear.....be ready! The process will be invasive, time consuming
and costly. Early preparation for an audit will certainly help.
With respect to domestic trust audits, our firm has been
involved in a number of these cases. Our cases generally involve
plans where the residency of a domestic trust is planned to be in
Alberta but the CRA asserts that the residency is in a province
other than Alberta (generally Ontario or British Columbia where the
tax rates on the subject trust income is usually greater than that
of Alberta). Given the judicial history of the Garron decision and
the recent Supreme Court of Canada decision in such a case, (see
our blog dated
April 12, 2012) the CRA would seem to have some momentum to
further attack these types of cases. Our recent experience is that
the CRA seems to be taking a very aggressive position with
inter-provincial trust plans.
We have also seen recent CRA trust audit questionnaires and
listened to other firms' experiences with domestic trust
audits. One trust audit in particular appeared to be very invasive
with the CRA taking very aggressive taxable benefit positions for
certain amounts paid by trusts on behalf of the beneficiaries. In
discussions with these practitioners, many of the assertions by the
CRA appear to be very defensible but it was interesting nonetheless
to hear about the positions that the CRA was taking.
Finally, Tax-Free Savings Accounts ("TFSAs") are still
under the scrutiny of the CRA. This audit initiative has received
recent media exposure and appears to be
targeting TFSAs that have had large "wins." The CRA also
appears to be reviewing, as they have in the past, TFSA
contribution room. One of our firm's clients recently received
a letter from the CRA that suggested that the client had exceeded
their contribution limit. While the matter was easy to resolve,
others may not be given the specific facts.
To summarize, domestic trust audits, the RPI and TFSA audits are
not dead. Quite the contrary... they are alive and well. Be
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One of the most difficult assets to deal with in an estate plan is a family cottage. Although you may want to keep the cottage in the family, it is often difficult to develop a plan that is tax-effective and that ensures equitable enjoyment of this asset by those family members who have an interest in maintaining it.