2 June 2026 STEP Roundtable Q. 9, 2026-1089241C6 - Trust Refreeze

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: Can the CRA confirm that the transactions described in paragraph 81 of the CRA guidance webpage on the mandatory disclosure rules would not be subject to the application of the GAAR?

Position: The CRA would not generally seek to apply the GAAR to the transactions described in paragraph 81 of the CRA guidance webpage on the mandatory disclosure rules.

Reasons: see below.

2026 STEP CRA Roundtable – June 2, 2026

QUESTION 9. Trust Refreeze

The transactions and series of transactions designated by the Minister for the purposes of section 237.4 in NT 2023-02(footnote 1) (the “Designated Transactions”) include transactions and series of transactions that seek to avoid or defer the 21-year deemed realization rule in subsection 104(4) or that seek to avoid the rules in subsections 107(5) and (2.1) on the distribution of trust property to a non-resident beneficiary even though the property continues to be held, directly or indirectly, by a trust or by a non-resident beneficiary.

A transaction that is the same as, or substantially similar to, the Designated Transactions, or a transaction in a series of transactions that is the same as, or substantially similar to, the Designated Transactions would constitute a notifiable transaction. Two transactions, or series of transactions, are substantially similar if they are expected to obtain the same or similar types of “tax consequences” (as defined in subsection 245(1)) to one or more persons and the transactions or series of transactions are either factually similar or based on the same or similar tax strategy. This is to be interpreted broadly, in favour of disclosure.

Paragraph 81 of the CRA guidance webpage on the mandatory disclosure rules (the “CRA Guidance”)(footnote 2) states that the following transactions would not be considered substantially similar to the Designated Transactions:

“Generally, transactions which limit, in whole or in part, the future growth in the value of shares of Opco (common shares) by having the owner - Old Trust - exchange the common shares for new shares that have a fixed value (preferred shares) that is equal to the fair market value (FMV) of the common shares and where a New Trust subscribes to the growth in the value of shares of Opco (“a freeze”) or where the Old Trust sells the common shares at FMV to the New Trust would not be considered substantially similar to NT 2023-02 insofar as no rights and restrictions are expected to avoid or defer the 21-year deemed realization rule or to avoid the rules in subsections 107(5) and (2.1) through a significant reduction in FMV.”

Can the CRA confirm that the transactions described in paragraph 81 of the CRA Guidance would not be subject to the application of the general anti-avoidance rule (“GAAR”)? If the CRA is of the view that the GAAR could be applicable in certain circumstances, could it clarify what factors it would consider in making such a determination?

CRA Response

The CRA would not generally seek to apply the GAAR in circumstances where, as described in paragraph 81 of the CRA Guidance, a trust (described as “Old Trust” in the CRA Guidance) would exchange common shares it holds in a corporation for preferred shares having a redemption value and fair market value equal to the fair market value of the common shares so exchanged or where a trust would dispose of common shares it holds in a corporation to a newly formed trust for proceeds of disposition equal to the fair market value of the common shares so disposed of at that time, and where, considering all rights and restrictions applicable in the circumstances, such transactions would not be substantially similar to the Designated Transactions. This is because such transactions would not, in and by themselves, be considered to result in a misuse or abuse of subsections 104(4), 104(5.8), 107(2.1) or 107(5). However, the CRA’s conclusion could differ if, after a review of the rights, restrictions, and all other relevant facts applicable in a particular case, it is determined that the transactions or series of transactions result in the same or similar types of tax consequences as those noted in the Designated Transactions.

In addition, please note that our comments are limited to the transactions specifically described in paragraph 81 of the CRA Guidance. The CRA’s conclusion on the application of the GAAR could be different if it was found that the transactions formed part of a broader series of transactions. The determination of whether the GAAR would apply to any particular situation would require a full consideration of all the facts and circumstances.

Laurence Gagné
2026-108924

Response prepared in collaboration with:

Richard Archambault and Joseph Armanious
Tax Avoidance Division, International and Large Business Directorate
Compliance Programs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. CRA, Notifiable transactions designated by the Minister of National Revenue online: Government of Canada .

2. CRA, Mandatory Disclosure Rules – Guidance online: Government of Canada https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/mandatory-disclosure-rules-overview/guidance-document.html>.