17 June 2025 STEP Roundtable, Q.11

An inter vivos discretionary trust with three trustees distributes a corporation to a beneficiary who is an individual. In order for this to not trigger a loss restriction event, does s. 256(7)(a)(i)(A) require that the individual be related to each of the Trustees?

CRA indicated that, in the absence of evidence to the contrary, it would presume that all of the trustees would constitute a group controlling the corporation.

In this case, a loss restriction event would occur as a result of the distribution of the shares – except that control of the corporation will be deemed not to have been acquired if the individual beneficiary was related to each of the three trustees immediately before the distribution of the shares.

CRA implicitly found that s. 256(7)(a)(i)(A) would apply to the distribution to an individual beneficiary of shares of a corporation by a trustee with three trustees if all three of the trustees were related to such beneficiary, Thus, CRA implicitly applied s. 33(2) of the Interpretation Act to s. 256(7)(a)(i)(A) so that its reference to an acquisition of shares by a particular person from a person with whom that individual was related applied to an acquisition of shares from related persons.