Should I trust electronicsupplyltd?

Use by a Canadian of a U.S. trust for tax avoidance purposes?

• Suppose some Canadian citizen is anticipating a huge windfall from an investment, and tries to avoid Canadian tax on the benefit by gifting an investment expected to grow by leaps and bounds to a taxable U.S. trust, with the trustor (one administering the trust) being himself or perhaps someone with whom he has a non-arms-length relationship, and the trustee (person designated as the beneficiary of the trust) being himself or another at non-arms-length. A huge dividend being placed into the trust is hoped for, along with large capital appreciation, although hardly certain at this point, and the value of the investment even after the dividend would hopefully skyrocket. The trust would pay U.S. dividend tax, which is much lower than the Canadian tax the individual would have to pay. The trust would not have its assets "repatriated," except in small amounts (which would be taxable at Canadian rates, of course), but would instead buy things in the name of the trust that the person who owns the trust would benefit from, e.g., a house in Canada where the person would live for a tiny rent, or a timeshare the person could use for vacationing. Is there any point in the playing out of this scenario where the person trying to avoid tax would be hit for Canadian or even American tax? Would the assets bought by the trust to be used by the individual be deemed as income repatriated by the individual, even if they were hard assets, such as real estate? Would there be fines incurred due to the non-arms-length arrangements, if the person did not declare the setup of the trust and all its transactions to Canadian authorities. Is there a kind of American trust that would operate below the radar, legally, that the person could use instead?

• Answer:

  The IRS and CRA trade/share information on a regular basis.