The Corporation (a CCPC) pays management fees (including a bonus component) to a non-Alberta trust (“Trust A”) whose beneficiary is an Alberta trust (“Trust B”), whose sole beneficiary is the sole shareholder of Corporation and/or his family. Trust B pays tax on its distributions from Trust A, and distributes the remaining amounts to its beneficiary as capital distributions. Would CRA question the reasonableness of the amounts paid by Corporation to Trust A, and would its position change if the sole shareholder were not the sole beneficiary of Trust B? After noting its policy in ITTN Nos. 22 and 30 that CRA “would not challenge the reasonableness of compensation paid by a CCPC to an individual who is a shareholder of the corporation (whether directly or indirectly through a holding company), provided that the individual is actively engaged in the activities of the corporation and is resident in Canada,” it stated:
[T]he CRA's policy applies only where salaries and bonuses are paid directly by the CCPC to individuals who are, directly or indirectly, shareholders of that CCPC. Consequently, the CRA would therefore reserve the right to challenge the reasonableness of the management fees that are paid to Trust A, which amounts are distributed to Trust B and ultimately to the sole shareholder of the corporation, whether or not that shareholder is the sole beneficiary of Trust B.