CRA indicates that s. 74.4(2) could apply to a s. 51 estate freeze-style reorganization by two spouses in favour of two discretionary trusts for them and their spouse

Mr. X and Mrs. X, each owning 50% of the common shares of corporation that is not a small business corporation, effect a s. 51 exchange of their respective shareholdings for the issuance of freeze preferred shares, with a discretionary trust created for each spouse (but with discretion to pay income or capital thereof to the other spouse) subscribing nominal and equal amounts for new common shares of the corporation.

CRA indicated that the s. 74.4(2) could apply following this transaction, given that “one of the spouses could potentially be entitled to more than 50% of the income of the Corporation because of his or her beneficial interest in both trusts,” so that there could be a resulting transfer of income from one spouse to the other.

Neal Armstrong. Summary of 7 October 2020 APFF Roundtable Q. 15, 2020-0852271C6 F under s. 74.4(2).