An inter-vivos trust, whose beneficiaries are X, X's issue and another trust, owns all of the voting and participating shares of Opco, and X owns all the non-voting and participating shares of the capital stock of Opco. X's spouse owns all of the shares of Lossco and realizes a capital loss on disposing of his Lossco shares to Opco. Is such loss a superficial loss by virtue of X's spouse being affiliated with Opco?
CRA noted that there would be such affiliation under three scenarios: (i) X's spouse had de facto control of Opco (s. 251.1(1)(b)(i)); (ii) X had de facto control of Opco (s. 251.1(1)(b)(iii)); or (iii) X and the inter-vivos trust constitute an affiliated group of persons having de facto control of Opco (s. 251.1(1)(b)(iii)).
Respecting the third ground, CRA noted that s. 251.1(4)(d)(i) deemed the trustee’s discretion to be exercised in X’s favour, so that X formed an "affiliated group of persons" with the trust and, given that X and her spouse were affiliated persons under s. 251.1(1)(a), provided that X and the trust had de facto control of Opco, X's spouse would be affiliated with Opco pursuant to s. 251.1(1)(b)(iii), since he was the spouse of a member of an affiliated group of persons that controlled Opco by virtue of s. 251.1(1)(b)(ii).