Father, a resident Canadian, makes a loan on arm’s length terms to a factually non-resident trust (the “Trust”) six months after the Trust’s settlement. The Trust’s sole beneficiaries are his two resident children. Is Father not considered to have made a contribution because the loan qualified as an arm’s length transfer on the basis that “it is reasonable to conclude that none of the reasons … for the transfer is the acquisition at any time by any person or partnership of an interest as a beneficiary under a non-resident trust”.?
CRA indicated the quoted words did not establish a test that the beneficiary’s interest must be acquired as a result of the particular transfer being considered and that the definition instead seeks to ensure that there is no connection between the transfer, and the person or partnership that already has an interest in the non-resident trust, or would have such an interest in the future.
Accordingly, it must be reasonable to conclude that none of the reasons for Father making the loan was his children being Trust beneficiaries. Such a conclusion would be highly unlikely given his relationship to them – so that he would be considered to have made a contribution to the trust, he would be a resident contributor and the trust would be deemed to be resident for the purposes listed in s. 94(3)(a).