A family trust paid income to the minor children in breach of a prohibition in the trust deed against making distributions to designated beneficiaries. In rejecting a submission based on the statement in Cooper that “the illegality (if any) of actions of the taxpayer, in this case the payment to the Plaintiff in relation to the terms of the trust, is irrelevant in the assessment of tax liability,” CRA stated:
[T]he comments in Cooper do not extend to provide that the illegality (if any) of actions of the taxpayer may be used to obtain a tax benefit or to claim a deduction from income where such a benefit or deduction does not meet the requirements under a plain reading of the Act.