A trust, whose sole trustee is a corporation, acquired, as its only asset, a property valued at $50 million (the "Property") in consideration for the issuance of a note payable in the same amount, and then disposed of the Property and used the proceeds to repay the note. Should the trust obtain an advance certificate for distribution under s. 159(2) before the note is repaid and, if so, and in the event that the trustee has failed to obtain such a certificate? CRA responded:
It is generally not necessary to obtain a clearance certificate before a distribution where the legal representative retains sufficient property to pay any tax liability.
We are of the view that the term "distributing" used in subsection 159(2) has a broad enough meaning to include a transaction by the legal representative that has the effect of greatly diminishing the value of the property in the legal representative’s custody. Furthermore, we are of the view that a transaction whereby a legal representative transfers, to an unsecured creditor as payment, all of the taxpayer's property in its custody as legal representative, would be a transaction coming within these terms.