CRA considers that making a s. 107(2) distribution to a corporate beneficiary held by a new trust is an abusive circumvention of the s. 104(4) 21-year rule

A discretionary resident trust that is approaching its 21st anniversary distributes property with an unrealized gain to a corporate beneficiary that is wholly owned by a newly-established discretionary trust.

When this transaction was presented to it in a ruling request, the GAAR Committee observed that the new trust technically would start afresh under the 21-year deemed realization rule, and considered that it inappropriately circumvented this rule, which works hand in hand with the s. 70 rule for deemed realizations on death, to prevent indefinite deferrals of capital gains. CRA further indicated that a distribution to a corporate beneficiary will generally be acceptable if the individual shareholders of that corporation are resident in Canada, and that, as for non-resident individual beneficiaries, it will look to see that there will be taxation within Canada in their lifetime.

Neal Armstrong. Summary of 2016 CTF Annual Roundtable, Q.1 under s. 104(5.8).