Examples of the abusive use of family trusts to which CRA has applied GAAR included:
- Capital gains are shifted off-shore through the use of non-resident trusts and a series of transactions whose purpose is to thwart the spirit of the Act, which is essentially to tax Canadian residents on their earned income as well as on their capital gains accrued during the period that they reside in Canada. Where appropriate, CRA will challenge the residency of the trust.
- To circumvent the split-income rules respecting the distribution by a trust of dividends to minor beneficiaries, a series of transactions is implemented to convert the dividend into a capital gain and subsequently distribute it to the minor children.
- The creation of a family trust is combined with the application of s. 75(2) and the s. 112(1) dividend deduction to avoid the payment of any tax in respect of dividends paid by the corporation and received by the trust.
- In connection with the disposition of a taxpayer's shares, a structure involving a family trust and the participation of accommodation parties is implemented in order to avoid tax on the capital gain resulting from the disposition of the shares through the use of the capital gains deduction.