A March 30, 2023 Tax Court of Canada case reiterated the importance of the trustee of a trust properly understanding the terms of the trust. In this case, the trust had paid $100,000 to two beneficiaries, both under age 18, from capital gains eligible for the capital gains exemption. However, the terms of the trust prohibited payments to beneficiaries under age 18.
Taxpayer loses
The Court ruled that amounts paid in violation of the trust terms were not payable for income tax purposes and were therefore neither income to the beneficiaries nor deductible from the trust’s income.
ACTION: If acting as a trustee of a trust, ensure to fully understand the terms of the trust to avoid a surprising tax consequence
