Background
The Trust is a non-resident personal trust whose Settlor has since been liquidated, and there is no other person who was at any time subject to s. 75(2) or 94(8.2). The sole beneficiary of the Trust is Beneficiary, a company, that is a member of a corporate group. Essentially the only Trust asset is the entire beneficial interest in Canadian real property (the “Real Property”) that is taxable Canadian property and that is leased to a group Canadian company (Canco 2). The Trust had acquired the Real Property from Canco 2 in consideration for the assumption of Loan 1, being a mortgage owing to the third party that had sold the Real Property to Canco 2, and Loan 3, being an unsecured loan owing to Finco, a wholly-owned subsidiary of the Beneficiary. The Trust also is obligated under Loan 2, which is secured by a mortgage on the Real Property. Trustee has full discretion to make distributions of income or principal to the Beneficiary. The 21st anniversary under s. 104(4) is approaching and the Real Property has significant accrued gain and recapture.
Proposed transaction
The Trustee will distribute the Real Property (including lease) to the Beneficiary, on condition that the Beneficiary assume Loan 1, Loan 2, and Loan 3, which will be the sole consideration given for. The fair market value of the properties received will exceed the assumed debt.
Rulings
Including that s. 107(2) will apply to the distribution from the Trust of the Real Property to the Beneficiary such that:
- pursuant to s. 107(2)(a) the Trust will be deemed to have disposed of the Real Property for its cost amount,
- the Beneficiary will be deemed under s. 107(2)(b) to have acquired it at the same amount
- and under s. 107(2)(c) to have disposed of part of its capital interest for that amount minus the eligible offset amount, being the amount of the assumed debt, and
- pursuant to ss. 107(1.1), 107(1)(a), and s. 108(1) – “cost amount”, the adjusted cost base of the part of the capital interest in the Trust to the Beneficiary, immediately before the disposition of such part of the capital interest, will be deemed to be the total of all amounts each of which is the cost amount to the Trust of the distributed properties.