S. 107.1(b) provides that where an employee benefit plan trust (the "Trust") distributes shares held by the Trust to an employee beneficiary, the Trust is deemed to have disposed of the shares for proceeds equal to their cost amount immediately before that time and the employee is deemed to have acquired the shares at a cost equal to the greater of their fair market value ("FMV") and the adjusted cost base of the employee's interest in the Trust (generally of nil). Does this mean that any appreciation in the value of the shares accumulated during the period the shares are held by the Trust is tax-free since the employee is deemed to acquire them at their FMV? CRA responded:
Generally, it is the CRA's position that where the provisions of section 7 apply to a particular fiduciary plan, then none of the provisions relating to employee benefit plans, including those of section 107.1, apply. The question of whether a particular fiduciary plan falls within the provisions of section 7 is one of fact and law that can only be resolved by an examination of the plan and all relevant facts.