2022 Ruling 2021-0919101R3 - Ruling Letter -- summary under Subsection 106(2)

Background

Daughter1 and Daughter2 (sisters) had been the equal income beneficiaries of a testamentary trust (the Fund). However, on the death of Daughter2, ½ of the Fund property had been distributed in accordance with the Fund terms to her issue.

Proposed transactions

1. Daughter1, who has no children, will now execute a written renunciation of her income interest in the Fund. However, she also will, for greater certainty, disclaim any capital interest that might accrue to her as a result of such renunciation.
2. Each of Daughter1, and Daughter2’s children and grandchildren (all adults) will sign a consent to the distribution of all of the capital property of the Fund to Daughter2’s children as described below.
3. The Trust Company (which, with Daughter1, is the trustee of the Fund) will prepare a scheme of distribution that divides the property in the Fund (mostly marketable securities and mutual fund trust units) into three shares, each representing 1/3 of the FMV and contemplates in specie distribution of most of the property, to each child of Daughter2 - other than some of the mutual fund units, which are not permitted to be transferred and, instead, must be sold for cash, with the cash proceeds being so distributed. Daughter1 will approve of the scheme before it is sent to Daughter2’s children.
4. After an interim distribution, filing of the final T3 return, approval of accounts and receipt of a clearance certificate, the final distribution will be made in accordance with the scheme of distribution.
5. 1/3 of the taxable capital gains realized from the sale of the MFT units referred to in 3 above, will be allocated to each of the children.

Rulings

The transactions, other than the property distributions by the Fund, will not result in a disposition of any property of the Fund.

The renunciation by Daughter1 of her income interest in the Fund will not result in Daughter1 being considered to have received any proceeds of disposition for purposes of ss. 40(1), 106(2) and 107(1).

The consent provided by Daughter1, Daughter2’s children and grandchildren will not result in any of them being considered to have received any proceeds of disposition for purposes of ss. 40(1), 106(2) and 107(1).

S. 107(2) will apply to the distributions of the Fund property to each of Daughter2’s children.