The trustees of a fully discretionary trust that is resident in Canada for the purposes of the Act, applied, with the consent of all the beneficiaries of the trust, to the courts to have the trust deed amended to add a new beneficiary, with the court allowing such addition.
(a) If the new beneficiary is a corporation all of whose shareholders are the original beneficiaries of the trust, does this amendment to the trust indenture result in the original beneficiaries disposing of their interest in the trust?
(b) If the new beneficiary is a corporation in which a majority of the voting and participating shares are held by persons other than the original beneficiaries of the trust, is there a disposition by the original beneficiaries of their interest in the trust?
CRA responded:
(a) … [T]his amendment to the trust indenture results in a partial disposition of the capital and income interests in the trust held by the original beneficiaries.
Since … paragraph 69(1)(b) is applicable in this case, the original beneficiaries will be deemed to have received, as a result of the partial disposition of their interests, consideration equal to the fair market value of those interests. …
(b) In the event that the courts approve the addition of a beneficiary that is a corporation in which a majority of the voting and participating shares are held by persons other than the original beneficiaries of the trust, it would first have to be determined whether the change is significant enough to give rise to a new trust and, consequently, to a disposition of all the property of the old trust to the new trust.
In the event that the addition of a beneficiary does not result in a new trust, it is our view that the answer to Question (a) would also apply to Question (b).