Principal Issues:
Proposed reorganization to mitigate the tax consequences of the 21-year deemed disposition rule that would otherwise apply on XXXXXXXXXX to a testamentary trust which owns all the common shares of a private corporation . The proposed transactions will result in the creation of voting participating dividend paying shares and non-voting non-participating non-dividend paying shares followed by the distribution by the trust of the non-voting non-participating non-dividend paying shares and the streaming of the ACB and PUC to one class of shares using 85(1)(g).
1. Will the proposed reorganization of the share capital of the company wholly owned by a trust result in the transfer of the trust's ACB in the existing common shares to the class B preferred shares pursuant to 85(1)(g)?
2. Will the disclaimer by the widow of a portion of her interest in the trust result in any tax consequences to her?
3. Will the variation of the trust constitute a disposition by the trust to a new trust?
4. Will the variation of the trust constitute a disposition of any beneficial interest in the trust?
5. Will the distribution of the preferred shares (with all the accrued gains) to the beneficiaries be deemed to occur at the cost amount pursuant to 107(2)?
6. Will GAAR apply?
Position:
1. Yes 2. The widow will be considered not to have received any proceeds of disposition for the purpose of sections 106 and 107 of the Act. 3. No disposition of the trust property. 4. No disposition of the beneficiary's interest for the purposes of sections 106 and 107 of the Act. 5. Yes. 6. No.
Reasons: