CRA indicates that s. 13(7)(e) applied to a s. 107(2.1) distribution but not a s. 104(5) deemed disposition

CRA agreed that the ½ step-up rule in s. 13(7)(e) does not apply to a deemed disposition under s. 104(5) given that the trust is not related to itself and does not otherwise not deal at arm’s length with itself.

The correspondent also suggested that s. 13(7)(e) does not apply on a s. 107(2.1) distribution of property: although s. 107(2.1)(a) and (b) respectively deem the trust to have disposed of the property and the beneficiary to have acquired it, s. 107(2.1) does not deem the beneficiary to have acquired the property from the trust. CRA considered this argument to be precious given that the preamble to s. 107(2.1) stipulates as a precondition to its application that there be a disposition of property by the trust to the beneficiary.

Finally, CRA indicated that the assumption by the beneficiary of debt of a personal trust owing to a bank would not preclude s. 107(2) applying to the distribution provided that such assumption did not result in the trust ceasing to be a personal trust (having regard to the question, not discussed by CRA, of whether such assumption constituted consideration for the acquisition of a beneficial interest in the trust).

Neal Armstrong. Summaries of 19 January 2017 External T.I. 2015-0576751E5 Tr under s. 13(7)(e) and s. 107(2).