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.
Whether or not we should give a favorable ruling in an estate freeze situation involving a discretionary trust the beneficiaries of which include the freezer.
- • an estate freeze is proposed whereby the taxpayer, an individual, will transfer all his shares, being common shares, in Opco to Holdco (both of which are small business corporations) pursuant to subsection 85(1) for consideration consisting of preferred shares of Holdco having an aggregate fair market value equal to that of the Opco common share transferred.
- • an irrevocable discretionary trust, having an arm's length trustee, will hold all the common shares of Holdco; the settlors of this trust will be the taxpayer and his spouse while the beneficiaries thereof will be the settlors and their children, one of whom is a minor.
- • should we rule on this type of "estate freeze" since the freezer is a beneficiary of the trust who may at the discretion of the trustee receive any or all of the income of the trust?
- • rule on the proposed estate freeze since all the general conditions for an acceptable estate freeze have been met and no particular provision of the Act has been offended.
Rationale:
- • the valuation and benefit problems inherent in estate freeze situations are not significantly increased by the inclusion of the taxpayer as beneficiary of the trust.
- • we have previously accepted estate freeze situations involving the use of a discretionary trust and situations where the freezer subscribes for some of the common shares that are issued as part of the freeze; by accepting a combination of these two types of situations we are not creating new problems.
- • none of the attribution rules concerning property transfers where a spouse, minor children or certain trusts are involved have been offended due to the facts of this particular situation.
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