CRA suggests that a child likely was not a majority-interest beneficiary as a valuation matter

The residue of Father’s estate was divided equally among his children including Son, with each child being entitled to the income from that child’s share, with the power of the trustees to distribute all of a portion of a child’s share to the child on or after attaining 25 (but with no such encroachment having occurred), and with the child’s remaining share to be held in trust for that child’s issue on the child’s death.

Whether Son was a “majority-interest beneficiary” impacted whether s. 69(11) applied to a “lossco transaction”. Although s. 251.1(4)(d)(i) deemed the trustees to have fully exercised their discretion to encroach, this by itself did not render Son a “majority-interest beneficiary” as the trustees did not have the discretion to pay one child’s share to another. The Directorate went on to note that “Son also held contingent beneficial interests in the remaining … Estate [assets], which would only be realized if the other Children die without issue surviving” and that:

…[I]t is unlikely that the FMV of Son’s contingent beneficial interests at the Time could result in him being considered a “majority-interest beneficiary” of Father’s Estate. … Accordingly, it is unlikely that the FMV of the total of Son’s respective income or capital interests in Father’s Estate could reasonably be considered to be greater than 50% of the FMV of all of the income or capital interests in Father’s Estate … .

Neal Armstrong. Summaries of 2 October 2019 Internal T.I. 2019-0803691I7 under s. 251.1(4)(d)(i) and s. 251.1(3) - majority-interest beneficiary .