CRA rules that a trust deed amendment by court order to permit the addition of corporations that were only indirectly owned by family beneficiaries did not trigger proceeds of disposition

A trust deed for a family trust (whose current named beneficiaries were family individuals) was to be amended by court order to expand the range of beneficiaries who could be added in the discretion of the trustees to include inter alia corporations which were wholly-owned indirectly by the family beneficiaries (previously, corporate beneficiaries could only be added if they were directly owned by family individuals). Following such amendment, the trustees would then exercise their discretion to add four corporations as beneficiaries, one of which was directly owned by two of the other corporate beneficiaries.

CRA ruled that (1) these transactions did not trigger a disposition of the trust property, (2) the obtaining of the amending court judgment would not result in a disposition of the interests in the trust of the existing beneficiaries and (3) that the addition of the corporate beneficiaries would not result in their receipt of proceeds of disposition including pursuant to s. 69(1)(b). It did not rule that such addition would not result in a disposition by the existing beneficiaries. The CRA summary states:

The addition of a new beneficiary to a discretionary trust by the exercise of a power to add such beneficiary in the trust deed results in a disposition, by the existing beneficiaries, of a portion of their interest in the trust. However, provided the existing beneficiaries do not direct to whom the interest is transferred, they would not be deemed to have received proceeds of disposition under paragraph 69(1)(b). This is also true for the trustee/beneficiary who, in this particular situation, is not considered to have control over the decision to add a new beneficiary.

Neal Armstrong. Summary of 2021 Ruling 2020-0862431R3 F under s. 248(1) – disposition.