CCPC Status - Ownership by a Trust
Question 50
Assume all of the common shares of a private corporation which is incorporated and carries on business in Canada are owned by a trust. This trust has three trustees who are all resident in Canada for income tax purposes. All issues are decided by a simple majority of the trustees. The beneficiaries of the trust, however, are all non-residents for income tax purposes.
On the assumption that the beneficiaries of the trust do not have direct or indirect influence that, if exercised, would result in control in fact of the corporation, pursuant to subsection 256(5.1), would the Department consider the corporation to be a Canadian-controlled private corporation as defined in subsection 125(7) of the Act where
(a) the trustees have full discretion as to the allocation of income and capital among the beneficiaries?
(b) the trustees have no discretion as to the allocation of income and capital among the beneficiaries?
Department's Position
The fact that the non-resident beneficiaries of the trust do not have direct or indirect influence that, if exercised, would result in control in fact of the corporation pursuant to subsection 256(5.1) is inconclusive for purposes of determining whether the corporation is a Canadian-controlled private corporation. It must also be determined whether any other nonresident person, including the settlor of the trust, has such influence.
Provided that the trustees, in fact, control the private corporation then the Department would consider the corporation to be a Canadian-controlled private corporation as defined in paragraph 125(7)(b) of the Act. The fact that the trustees have or do not have full discretion as to the allocation of income and capital of the trust among the beneficiaries would not, in and by itself, preclude the corporation from qualifying as a Canadian controlled private corporation.
000322