Mr. X makes a non-interest bearing loan to an alter ego trust that was established for him. The terms of the loan were established independently of those for the Trust Indenture. CRA stated:
Subsection 75(2) is generally not likely to apply to Mr. X in the hypothetical situation … . The inapplicability of this provision arises from … the terms of the loan [being] determined independently of the terms of the trust indenture, as confirmed … in Howson … .
CRA went on to indicate that where Mr. X paid the Trust income tax consequent on the Trust making an s. 104(13.1) election, this would not be treated as a contribution to the Trust that engaged s. 75(2); whereas, if:
[A]n election under subsection 104(13.1) [is] made where Mr. X renounces the income payable to him by the Trust for the taxation year ... Mr. X would be considered to have made a capital contribution to the Trust. This contribution could subsequently lead to the application of subsection 75(2) in respect of Mr. X.