Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: (1) Whether a loss restriction event would occur as a result of the distribution of all the voting shares of a corporation held by a trust administered by three trustees ("Trustees") to a beneficiary who is an individual ("Distribution"); (2) Whether control of the corporation shall be deemed not to have been acquired pursuant to clause 256(7)(a)(i)(A) only if the individual was related to each of the Trustees immediately before the Distribution.
Position: (1) Yes; (2) Yes.
Reasons: (1) A loss restriction event would occur as a result of the Distribution since the individual would hold, after the Distribution, all the voting shares of the corporation that were previously owned by the Trustees; (2) The CRA views pertaining to the application of clause 256(7)(a)(i)(A) to the transfer of the voting shares of a corporation held by a person or a group of persons to a person or a group of persons should apply to the acquisition of control resulting from the Distribution.
2025 STEP CRA Roundtable – June 17, 2025
QUESTION 11. - Acquisition of Control of a Corporation
An inter vivos discretionary trust with three trustees (“Trustees”) holds the controlling shares of a Canadian corporation (“Corporation”). These shares are distributed (“Distribution”) to a beneficiary who is an individual (“Individual”). In order to prevent a loss restriction event to occur for the corporation, does clause 256(7)(a)(i)(A) require that the individual be related to each of the Trustees?
CRA Response
Where the majority of the voting shares of a corporation is held by a trust, it is the trustees of the trust who have legal ownership of the shares, who have the right to vote those shares and who, therefore, control the corporation. (footnote 1) Where a trust has multiple trustees, the determination as to which trustee or group of trustees controls the corporation can only be made after a review of all the pertinent facts, including the terms of the indenture. However, in the absence of evidence to the contrary, the CRA considers there to be a presumption that all of the trustees would constitute a group that controls the corporation.
Subject to the provisions of paragraph 256(7)(a), a loss restriction event would occur as a result of the Distribution. However, control of the Corporation shall be deemed not to have been acquired pursuant to clause 256(7)(a)(i)(A) if the Individual was related to each of the Trustees immediately before the Distribution.
François Mathieu
2025-105155
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1. M.N.R. v. Consolidated Holding Company Limited, 72 DTC 6007 (SCC).
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