At the time of the death of its settlor and beneficiary (Mr. X), an alter ego trust held a holding company (Xco) with a number of subsidiaries. Following the death of Mr. X, the trust wishes to transfer its Xco shares to a Newco formed by it, and cause Xco to be wound-up with a view to having the tax basis of the subsidiaries’ shares bumped under s. 88(1)(d). Could the deemed reacquisition, pursuant to s. 104(4), of the Xco shares on the death of Mr. X result in an acquisition of control of the Xco by the alter ego trust as “a consequence of the death of [the] individual,” so that s. 88(1)(d.3) could maintain the high ACB to the trust under s. 104(4), thereby permitting such high ACB to be used under s. 88(1)(d) on such a wind-up of Xco into Newco?
In its oral response, CRA stated:
Where s. 104(4) applies to deem a trust to have disposed of and reacquired shares of the capital stock of a wholly owned corporation, the deemed re-acquisition of the shares pursuant to s. 104(4) would not, in itself, result in an acquisition of control of the corporation. Even though the shares are deemed to be re-acquired by the trust at fair market value for tax purposes, the shares continue to be legally owned by the trust, so there is no transfer of the legal ownership of those shares, in the circumstances, that would result in acquisition of control.