CRA indicates that the addition by a trustee/beneficiary of a discretionary trust of further beneficiaries can give rise to a taxable disposition by him of part of his beneficial interest

In a 2008 letter addressed to the Aggressive Tax Planning Audit Division which was not released until this week, CRA found that the addition by the sole trustee of a discretionary family trust, who also was one of the beneficiaries, of a group of unrelated persons to the trust beneficiaries, represented a disposition of part of his beneficial interest in the trust for proceeds of disposition that were deemed by s. 69(1)(b)(ii) (respecting "gifts") to be equal to its fair market value.

Given that, as acknowledged by the letter, the property represented by the interest of a beneficiary in a discretionary trust is merely "a right ... to be considered by the trustee as to whether or not any trust property ... should, in the trustee's discretion, be distributed," this advice isn't practical.

Neal Armstrong.  Summary of 20 November 2008 Memorandum 2008-0281411I7  under s. 69(1)(b)(ii).