An individual purchased a housing unit for which he established a usufruct in favour of his parents. At all relevant times, the individual owned another housing unit, which he inhabited with his spouse and children. In order to dispose of the housing unit on which the usufruct was established to a third party, the usufructuaries renounced their right of usufruct.
CRA noted that, under s. 248(3), the parents and the individual were respectively deemed to be the income and capital beneficiaries of a trust, and that the renunciation gave rise to a dissolution of this deemed trust, with the result that s. 107(2) would apply to the deemed distribution of the trust property, unless an election was made under s. 107(2.01) or (2.001) in order for the trust to realize a gain for which it could claim the principal residence exemption.
Respecting the availability of the principal residence exemption to the trust, CRAs noted that, under para. (a.1) of the "principal residence" definition, the ordinary inhabitation requirement could be satisfied by a specified beneficiary, whose definition in subpara. (c.1)(ii) referenced “an individual who, at any time in the calendar year ending in the year, is beneficially interested in the trust (as defined in subsection 248(25)) and ordinarily inhabited the housing unit or has a spouse or common-law partner, former spouse or common-law partner or child who ordinarily inhabited the housing unit." CRA then stated:
If this is the case, it is permitted for a personal trust to elect under subsection 107(2.01) to ensure that the rollover provision of subsection 107(2) does not apply in respect of a distribution of property that could have been designated as the trust's principal residence before the distribution.