Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether section 67 of the Act will apply when a management fee or bonus is paid to a family trust.
Position: Question of fact.
Reasons: The situation is not covered by the CCRA policy outlined in Income Tax Technical News Issue No. 22, dated January 11, 2002.
XXXXXXXXXX 2002-014111
J. Gibbons, CGA
June 12, 2002
Dear XXXXXXXXXX:
We are replying to your letter dated May 9, 2002, in which you requested our comments on the application of section 67 of the Income Tax Act where a shareholder/manager's bonus is paid to a family trust. Our comments are of a general nature only since we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5.
As a general rule, the deduction of all expenses is subject to the test of reasonableness in section 67 of the Act, and the question of whether this provision applies in an actual situation can only be determined after a consideration of all of the facts. However, it is our policy, as outlined in Income Tax Technical News Issue No. 22, not to challenge the reasonableness of salaries and bonuses when they are paid to managers who are shareholders of Canadian-controlled private corporations (either directly or through a holding company), are Canadian residents, and are actively involved in the day-to-day operations of the company.
Since the payment of management fees or bonuses to a family trust is not covered by the CCRA policy discussed above, we can not confirm whether or not the quantum of a management fee or bonus will be accepted as reasonable in the particular circumstances.
We trust that these comments will be of assistance.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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