CRA rules that the aunt’s renunciation of her trust income interest, resulting in the corpus distribution to her nieces/nephews as approved by her, does not trigger proceeds to her

Daughter1 and Daughter2 (sisters) had been the equal income beneficiaries of a testamentary trust (the Fund). However, on the death of Daughter2, ½ of the Fund property had been distributed in accordance with the Fund terms to her issue.

Daughter1, who has no children, will now execute a written renunciation of her income interest in the Fund. However, Daughter1 will also approve a scheme of distribution (prepared by a trust company serving as trustee) for the distribution of the Fund property (mostly, marketable securities and MFT units, to be distributed in specie), to the three children of Daughter2 in equal shares.

This will occur as an interim distribution, and then a final distribution after a clearance certificate is received.

Rulings included that the renunciation by Daughter1 of her income interest in the Fund will not result in her being considered to have received any proceeds of disposition for purposes of ss. 40(1), 106(2) and 107(1), and that the transactions (other than the property distributions by the Fund, governed by s. 107(2)) will not result in a disposition of any property of the Fund..

Neal Armstrong. Summary of 2022 Ruling 2021-0919101R3 under s. 106(2).