A father who is the trustee of a discretionary family trust reimburses himself out of the trust funds for itemized expense of restaurant meals of the children and issues T3 slips to them. Is this acceptable?
CRA noted the three requirements in ITTN 11 for trust deductibility and inclusion in the beneficiaries’ income:
- the trust must exercise discretion, pursuant to the terms of the trust or the will, to make the amount of the trust income payable to the child before the payment is made;
- either:
- notification to the parent of the exercise of the discretion, along with the parent’s direction to pay the amount to the appropriate person, must occur, or;
- the payment must be made pursuant to the parent’s request and direction, where the parent was advised of that discretion; and
- it is reasonable to consider that the payment was made in respect of an expenditure for the child’s benefit.
CRA further noted that Degrace Family Trust stated that “the expenditure by the trustee must clearly be made by the trustee in his or her capacity as trustee for a purpose which is unequivocally for the benefit of the beneficiary,” and that in a 1999 technical interpretation, where “the household expenditures [were] basically totaled and divided by the number of family members in order to determine the child’s share” CRA indicated that
[I]t would be very difficult for the trustee to substantiate that the payments are unequivocally for the child’s benefit.