CRA asserts that a second freeze transaction by a family trust could be viewed as an indirect transfer by the original freezor
As a result of a previous estate freeze, A holds the voting freeze preferred shares of Opco (which is not a small business corporation) and a discretionary family trust (“Initial Trust”), with spouse and children as beneficiaries, holds the non-voting common shares. Now a further freeze is implemented under which Initial Trust exchanges its shares for preferred shares, and New Trust, with spouse children, grandchildren and family corporations as beneficiaries, subscribes for new non-voting common shares.
CRA acknowledged that only the (born) grandchildren (and not the spouse) could be designated persons in respect of Initial Trust (which was the relevant transferor to Opco on the second freeze) for s. 74.4(2) purposes, but did not give up that easily, stating:
[T]he application of subsection 74.4(2) could arise with respect to the estate freeze by Initial Trust if it were determined that the transfer of property made during this estate freeze was made indirectly by Mr. A by means of Initial Trust.
Consequently, were it were possible to establish that the Purpose Test was satisfied, subsection 74.4(2) could also apply to Mr. A in respect of the estate freeze by Initial Trust.