A trust was created in the course of an estate freeze of an operating corporation (OPCO). After the freeze, this trust subscribed for all of the common shares of OPCO. The sole beneficiaries of the trust were the two sons (X and Y) of the freezer, who each was entitled to an equal share on attaining 30 (with his estate being entitled to that share if he did not attain that age). In finding that the para. (g) exclusion likely applied, CRA stated:
Subject to the examination of the trust indenture, it would appear that when, as in the situations described in your scenarios, the trust indenture specifically establishes who are the beneficiaries and what are the rights of each under the trust, the interests in the trust could have vested indefeasibly if each beneficiary unconditionally holds his rights in the trust and if these rights cannot be defeated by any future event. …
Subject to the examination of the trust indenture, it would appear according to the two described scenarios that the interest of each of the beneficiaries is to be terminated as a consequence of a distribution of property of the trust to the beneficiary or his estate.
The question, therefore, is to determine whether the fair market value of the property to be distributed is commensurate with the fair market value of that interest immediately before the distribution. …[T]his condition will be met if the terms of the trust indenture allow us to conclude that the beneficiary, whose interest is terminated, will receive at the time of the distribution, property whose fair market value bears the same proportion to the fair market value of all the trust property immediately before the distribution as the fair market value of the interest which is terminated bears to the fair market value of all of the interests immediately before the distribution.