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October 30, 2014

Happy Halloween From Our Tax Team!

Who’s afraid of an evil trust?

Tax legislation is in place to prevent income splitting using a trust.  In simple terms, income earned within the trust can be attributed back to a specific source even where it is paid out by the trust to other beneficiaries.

An “evil trust” is one that has been set up to purposely take advantage of these attribution rules.  For example, one could create a structure where dividend income is attributed to a connected corporation free of tax while the cash is distributed to the intended beneficiary.

Obviously the CRA does not like such an arrangement and may seek to deny the application of the attribution rules or apply the General Anti-Avoidance Rules (“GAAR”).

Please contact the Manning Elliott Tax Team to avoid being spooked by an evil trust.

Creeping social media

Did you know that the Canada Revenue Agency (“CRA”) has the right to examine your lifestyle?  If you are living larger than the income reported on your income tax return, the CRA may try to assess taxes on income that they believe you have earned.

Be aware that your open social media accounts such as Facebook, Twitter, and Instagram may be viewed by a CRA auditor.  Posting pictures of your new luxury car, chalet in Switzerland, or Rolex watch while only reporting $15,000 of income on your tax return may raise some questions.

While your new acquisitions may be completely legitimate, you might want to consider locking down your social media accounts to prevent the CRA from creeping them.

In the meantime, if you need assistance in clearing any skeletons from your income tax closet, please contact the ME Tax Team for more information on the Voluntary Disclosures Program.

Crime doesn’t pay…especially when it’s murder

In a recent case in the Supreme Court of British Columbia, the question arose as to whether a son that had been convicted of murdering his mother was entitled to share in the residue of her estate.  The administrators of the estate sought guidance from the Court as the woman had died without a will.     

Citing a previous decision from the Supreme Court of Canada, it was decided that the son was not entitled to a share of the estate.  The principle that one cannot benefit from a crime they have committed overrode the current legislation that would normally dictate the distribution of an estate of a person that died without a will.

To avoid being haunted by the lack of a will, please contact the ME Tax Team to assist with your estate planning needs.

Trick or treat?  IRS can seize your accounts

The Internal Revenue Service (“IRS”) has been using a law that was designed to catch drug dealers and terrorists to seize the bank accounts of US individuals and small businesses.  Under this law, enforcement agents can take property that they think is tied to a crime without any criminal charges being filed.  The account holder is left to prove their innocence.

In Canada and the US, financial institutions are required to report certain transactions of $10,000 or more.  The seized accounts were identified based on deposits under $10,000.  While there are many legitimate business reasons for making deposits under $10,000, many account holders complained of receiving advice from their banks to keep deposits under $10,000 to avoid attracting the attention of the IRS.

The IRS has indicated that it will start focusing on cases where they believe the cash has been acquired illegally or where the seizure is justified by exceptional circumstances.  Hopefully this will bring an end to the ghoulish behaviour!