Reversing position, CRA finds that for s. 55 purposes a beneficiary includes a (potentially) “beneficially interested” person

S. 55(5)(e)(ii) provides that for s. 55 purposes a person is related to a trust if it is related to "each beneficiary (other than a registered charity) under [the] trust who is or may (otherwise than by reason of the death of another beneficiary under the trust) be entitled to share in the income or capital of the trust." In 2004, CRA stated (in 2004-0086961C6) that the expansive definition of "beneficially entitled" in s. 248(25)(a) "is irrelevant for the purposes of subparagraph 55(5)(e)(ii)."

After having studied Propep and reread s. 55(5)(e)(ii), CRA has now reversed position, so that the concept of who is a beneficiary under s. 55(5)(e)(ii) is expanded by s. 248(25)(a). This will make the interpretation of the exemptions in s. 55(3)(a) tricky where there is an inopportune presence or participation of a family trust whose trustees have a power to add beneficiaries - and CRA's cottoning onto the Propep dictum on "beneficiary" is generally fraught.

Neal Armstrong. Summary of 10 October 2014 APFF Roundtable, Q. 3, 2014-0538021C6 F under s. 55(5)(e)(ii).