Does CRA have an update respecting its comments at the 2016 CTF Roundtable, Q.1 respecting a distribution from a discretionary family trust ("Old Trust") to a Canco the shares of which are held by a newly established discretionary family trust ("New Trust"), thereby avoiding the application of the 21-year deemed disposition rule?
CRA noted that the New Trust was provided with another 21 years to determine who, from among the potential beneficiaries, would receive the trust property, which could result in deferring the unrealized gain beyond the lifetime of the individual beneficiaries alive on the date of the Old Trust’s 21st anniversary, that such planning circumvented the anti-avoidance rule in s. 104(5.8), and that CRA will apply GAAR when faced with a similar set of transactions unless substantial evidence supporting its non-application is provided.
At the 2016 CTF Roundtable, CRA also indicated that it was also considering the application in the situation whereby the realization of the accrued gains inherent in the distributed property would not be deferred beyond the lifetime of the existing beneficiaries at the time of the 21st anniversary of Old Trust, on the basis that the deferral of the realization event, i.e. the death of the individual beneficiary, would be consistent with that achieved by a deferred rollover of property to a Canadian resident individual beneficiary pursuant to s. 107(2) (although, in fact, the trust property would continue to be held indirectly in a discretionary trust.)
CRA has now concluded its review of this second situation, and has concluded that the Act does not contemplate any deferral beyond the 21-year period while property is directly or indirectly held in a discretionary trust, so that it will not rule thereon unless substantial evidence supporting the non-application of GAAR is provided.