A resident individual transfers $100 to Trust (whose beneficiaries include minors, i.e., “designated beneficiaries”), which uses the $100 to subscribe for shares of Holdco (wholly-owned by it) which, in turn, uses the $100 to subscribe for share of its subsidiary (Subco), so that Subco (which is not a small business corporation) can acquire investments.
After noting that there was insufficient information to determine whether the purpose test in s. 74.2(2) applied, CRA found that the exception in s. 74.4(4)(a) (which required inter alia that “the only interest that the designated person has in the corporation is a beneficial interest in the shares of the corporation held through a trust”) did not apply given that “the corporation” to which the indirect transfer had occurred was Subco, whereas the minor children had a beneficial interest only in the shares of Holdco, not of Subco.