The beneficiaries (the “Beneficiaries”) of a resident discretionary family trust (the “Trust”) are the children of Mr. X, who was the settlor. The trust agreement (the “Trust Agreement”) gives the trustees the power to distribute income or capital of the Trust to or for the benefit of the Beneficiaries, but does not contemplate that a trust created for the benefit of the Beneficiaries could be added as a beneficiary. Nonetheless, having regard to the approaching 21-year anniversary, the trustees intend to distribute the property of Trust to a newly created trust (the “NewTrust”) which has been settled for the benefit of the Beneficiaries. None of ss. 107(2.001), (4) to (5) would apply. Would a transfer to the Trust property to NewTrust occur on a s. 107(2) rollover basis?
CRA indicated that the term “beneficiary” in s. 107(2) included a person beneficially interested in the trust, which term was defined in s. 248(25) and that, in order for a person to be beneficially entitled under s. 248(25)(a) on the basis of having any right “as a beneficiary under the trust to receive any income or capital of the particular trust,” the person must have that right as a beneficiary.
Since the trust agreement did not include a trust for the benefit of the children of Mr. X as a beneficiary (nor contemplate any such trust as a future beneficiary), s. 107(2) would not apply on the transfer of property from Trust to New Trust, because New Trust was not a beneficiary.
CRA went on to note that it had not considered whether s. 248(1) – “disposition” – (f) or s. 107.4(3) could accord rollover treatment.