Gwartz - Tax Court finds that circumvention of the "kiddie tax" was not abusive

As a result of a surplus strip of a dentist's management corporation, the receipt of surplus was reported as capital gains by the dentist's two minor children, who were beneficiaries of a family trust.  Because this amount was a capital gain rather than taxable dividends, s. 120.4 - the "kiddie tax" provision - did not apply.

Hogan J. found that the series of transactions did not abuse s. 120.4, and therefore was not caught by the general anti-avoidance rule.  He reasoned that, in drafting s. 120.4, "Parliament preferred simplicity over complexity," and was surely aware that capital gains could be generated using surplus-stripping techniques, yet it did not include any capital gains in the s. 120.4 income-splitting rules (although it changed its mind after the years in question).

Scott Armstrong.  Summary of Gwartz v. The Queen, 2013 TCC 86, under s. 245(4) (with diagram).