CRA finds that GAAR should not be applied to a tax-motivated partnership income-sharing arrangement

The Directorate found that an income-splitting arrangement involving a limited partnership, of which a trust for the minor children of a professional was one of the partners, was not caught by the pre-2014 version of the s. 120.4 split-income rules, as the income of the partnership "was not derived from the provision of property or services."  However, the Directorate suggested that the arrangement might be attacked under s. 103(1) (on the basis that income-splitting appeared to be the sole objective of the structure) or s. 103(1.1) (on the basis that the kiddie trust did not effectively bear any of the expenses of the partnership).

The general anti-avoidance rule should not be applied as "subsections 103(1) and (1.1) are of sufficient breadth to override the [agreed] income-sharing terms."

Neal Armstrong.  Summaries of 10 March 2014 Memo 2013-0493971I7 F under s. 120.4(1) – split income – (c), s. 103(1) and s. 103(1.1).