Application of s. 13(7)(e) to deemed disposition
Does s. 13(7)(e) apply on a deemed disposition under s. 104(5)? CRA responded:
The Act does not contain a provision that would cause a trust to be related to itself for the purposes of paragraph 13(7)(e). On the deemed disposition…the trust is not related to itself so that it is not deemed to not deal at arm’s length with itself. Consequently, paragraph 13(7)(e) is not applicable….
Application of s. 13(7)(e) to s. 107(2.1) distribution
The correspondent suggested that s. 13(7)(e) is not applicable to a distribution of property under s. 107(2.1) because s. 107(2.1)(b) merely deems the beneficiary to have acquired the property but does not provide that the beneficiary is deemed to have acquired the property from the trust. CRA responded:
The preamble to subsection 107(2.1) provides that…the trust must dispose of property in favour of one of its beneficiaries. …
[T]he context and wording of the preamble to subsection 107(2.1) and paragraph (c) of the definition of disposition in subsection 248(1) provide a basis for concluding that the trust is deemed to have disposed of the property in favour of the beneficiary by virtue of paragraph (a) and that, under paragraph (b), the beneficiary is deemed to have acquired the property of the trust.
Paragraph 251(1)(b) provides that a beneficiary and a trust… are deemed not to deal with each other at arm's length. Where a trust makes a disposition to a beneficiary in the context of subsection 107(2.1)…paragraph 13(7)(e) can apply if the other requirements of paragraph 13(7)(e) are met.