An individual transfers shares to a trust of which he is the trustee, and he, his wife and children are the capital and income beneficiary. In order to avoid the attribution of the capital gain to him under s. 75(2), which would eliminate any ability to split the gain among the other beneficiaries so as to benefit from the capital gain deduction, the individual may renounce his beneficial interest in the trust's capital a few days before the sale of the shares and resign as trustee. Before discussion the potential for a valid renunciation to avoid the application of s. 75(2), CRA stated:
In the context of an advance ruling request or in the context of an audit engagement, it should first be ascertained from our Legal Services Department that a beneficiary holding a discretionary capital interest may renounce, prior to the exercise of the trustee's discretion, a specific property held by the trust as well as its proceeds of disposition and any substituted property. This is a legal issue on which we are not mandated to rule in the context of a request for technical interpretation. A similar question on a partial renunciation of an income interest in respect of a particular property held by a discretionary trust governed by common law rules was submitted to our Legal Department several years ago. At that time, they concluded, based on documentation provided by the taxpayer, that it was impossible for a beneficiary of a discretionary trust to partially forgo income from a specific property of the discretionary trust.