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.
CTF - 1990 Conference Report
QUESTION I 96
Estate Freezes
Consider the following estate freeze situation where a discretionary trust is used:
1. Mr. A, the sole shareholder of Opco, exchanges all of his common shares of Opco, in a transaction to which section 86 of the Income Tax Act applies, for preferred shares of Opco having a fair market value equal to the fair market value of the common shares of Opco.
2. A trust, of which Mr. A and his children are the beneficiaries, then subscribes for all of the common shares of Opco.
3. The trustee of the trust would have discretion over distribution of trust capital, with the result that the common shares of Opco could eventually pass to Mr. A, or his children, or some combination thereof.
Would the Department apply subsection 245(2) to this estate freeze, due to the reversionary nature of the freeze?
Would the Department's position be different if the only beneficiaries of the trust were Mr. A's wife and his children?
DEPARTMENT'S POSITION
Whether the Department would apply subsection 245(2) of the Income Tax Act to a particular situation can only be determined following a thorough review of all of the facts of that situation. However, if one of the transactions in the series of transactions that includes the distribution of the Opco shares or trust income to Mr. A is an avoidance transaction within the meaning of subsection 245(3), the provisions of subsection 245(2) may apply to the transaction. Also, depending on the facts of the situation, other provisions of the Income Tax Act, such as subsections 74.1(2), 74.3(1), 74.4(2), 75(2) and 86(2), may have application.
Prepared by: S. Leung
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© His Majesty the King in Right of Canada, 1990
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté le Roi du Chef du Canada, 1990
Email this Content