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. Will s. 74.4(2) apply?
After noting that there was insufficient information to determine whether the purpose test in s. 74.2(2) applied, and further indicating that the exception in s. 74.4(4) did not apply, CRA went on to find that, assuming that the Trust was a discretionary trust, each child would be deemed under para. (e) of the specified shareholder definition in s. 248(1) to wholly own Holdco, so that each child also would be a specified shareholder, under that definition, of the related corporation (Subco). Thus, such test in s. 74.4(2)(a) would be satisfied.