The taxpayer and his wife were the trustees of a discretionary family trust having him, their two (university-age) children (Michael and Megan) and a family corporation as beneficiaries. The trust received dividends from the holding company for the family business, distributed those funds including by way of issuing cheques for a portion of the income to the children, with the children immediately endorsing the cheques back to the taxpayer, who professed to have spent the funds so received on expenditures for the benefit of the children, such as covering part of the costs of the family car and condominium. In confirming (subject to a minor variation) ARQ assessments which included the distributed income amounts in the income of the taxpayer under the Quebec equivalent of ITA s. 104(13) (TA s. 663), Bourgeois JCQ stated (at paras. 97-99, 108, TaxInterpretations translation):
… Michael and Megan each acted as an accommodation party, whether as an agent or nominee, for their father.
… Michael and Megan never had control of the sums that were paid to them by the Trust.
… [T]he children had no idea at the time, or even today, what sums were distributed to them by their father for their own expenses. …
Thus, since Caplan was also a Trust beneficiary, the facts demonstrate that it was he who appropriated most of the income distributed to the children and, as a consequence, TI section 663 applied to tax, in the hands of the plaintiff, the sums paid by the Trust to the children.
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