CRA repeats that distributions by a Canadian discretionary trust to a NR-owned Canadian corporate beneficiary of TCP not carved-out in s. 107(5) appear abusive

In 2017-0724301C6, CRA indicated that it quite possibly was a GAARable circumvention of ss. 107(5) and (2.1) for a Canadian-resident discretionary trust to effect a s. 107(2) distribution of property that was not taxable Canadian property to a Canadian corporation that was in incorporated by one or more of its non-resident beneficiaries. which was a corporate beneficiary.

At the 2019 CTF Annual Conference (2019-0823581C6), CRA indicated that it had recommended that GAAR be applied to a similar distribution by a Canadian resident discretionary trust - where the distributed property (namely, shares of a real estate corporation) was taxable Canadian property (TCP) that did not come within the carveouts to s. 107(5) (being property described in ss. 128.1(4)(b)(i) to (iii) or a share of the capital stock of an NRO) - on the basis that, even though the property that was transferred was TCP, it was not the type of property that was specifically carved out in s. 107(5), so that such a transfer is an abuse of ss. 107(2), (2.1) and (5). CRA noted that it would be appropriate to apply the same conclusion whether or not the transactions are undertaken to avoid the 21-year disposition rule under s. 104(4).

CRA has now reiterated this position a year later at the 2020 STEP Roundtable without any significant changes. Repetition is emphasis.

Neal Armstrong. Summary of 2020 STEP Roundtable, Q.12 under s. 107(5).