CRA ruled that s. 107(2) would apply to the distribution of the shares of two CCPCs (Zco, a holding company, and Xco, an investment company) by a discretionary family trust (Trust 2) to its beneficiaries, who were father (Mr. A), mother (Ms. A) and the two children – following which the shares of Mr. A and of the children would be transferred on a s. 85(1) rollover basis into a holding company controlled by Mr. A.
Zco was the result of an amalgamation between it and a subsidiary (Yco), whose shares Zco had received under s. 107(2) in its capacity of beneficiary of another discretionary family trust (Trust 1). After issuing its s. 107(2) ruling regarding the distribution by Trust 2, CRA issued a caution that s. 245(2) could be applied to deem s. 104(4) (the 21-year deemed realization rule) to be applicable to Trust 2 if the distribution by it of its Zco shares did not occur before the 21st anniversary of the settlement of Trust 1.