CRA indicates that a trust with children beneficiaries could not roll-out property under s. 107(2) to a trust for the benefit of those children

Having regard to the approaching 21-year anniversary, the trustees of a resident discretionary family trust of which only the children are beneficiaries decide to distribute the trust property to a newly created trust which has been settled for the benefit of the children. CRA found that the transfer of the trust property to the new trust would not occur on a s. 107(2) rollover basis.

Without referencing Propep, it indicated that the term “beneficiary” in s. 107(2) included a person "beneficially interested" in the trust, which term was defined in s. 248(25) and that, in order for a person to be beneficially entitled under s. 248(25)(a) on the basis of having any right “as a beneficiary under the trust to receive any income or capital of the particular trust,” the person must have that right as a beneficiary.

Since the trust agreement did not include a trust for the benefit of the children (nor contemplate any such trust as a future beneficiary), s. 107(2) would not apply on the transfer of property from the trust to the new trust, which was not a “beneficiary.”

CRA went on to note that it had not considered whether s. 248(1) – “disposition” – (f) or s. 107.4(3) could accord rollover treatment.

Neal Armstrong. Summary of 15 June 2021 STEP Roundtable, Q.7 under s. 107(2).