Effect of power to add and remove beneficiaries (PARB) (p. 2)
However, if the beneficially interested concept is applicable for purposes of subsection 55(2), then it appears that PARBs in trusts could cause those trusts to be unable to avail themselves of the exception to that provision, which might otherwise be available under paragraph 55(3)(a). The reason for this is that only trusts that meet the restricted related persons provisions in paragraph 55(5)(e) [Note 6: Generally, trusts where the only beneficiaries are the lineal descendants of an individual and/or registered charities, which is quite typical in many traditional Family Trust situations.] qualify for this exception. In this regard, although the CRA has indicated that "the concept of 'person beneficially interested' is irrelevant for the purposes of subparagraph 55(5)(e)(ii)", it also indicated that it "feel[s] that the right described in subparagraph 55(5)(e)(ii) I.T.A. and paragraph 248(25)(a) I.T.A. are fairly similar". [Note 7: See CRA document No. 2004-0086961C6, October 8, 2004.]
It is unclear whether the CRA's views regarding subparagraph 55(5)(e)(ii) would also be applicable to situations caught by paragraph 248(25)(b). Nevertheless, given the CRA's conclusion, it would appear that the inclusion of a PARB might well be problematic for the purposes of subsection 55(2).
Effect of power to add and remove beneficiaries (PARB) (p. 2)
Does the inclusion of a PARB mean that pursuant to paragraph (1) of this definition everyone in the world would become beneficially interested in the trust? I would hope not as I'm not sure that, say, the Prime Minister of Malaysia [Note 2: Zoolander, Dir. Ben Stiller, 2001.] could be seen to have any "right … as a beneficiary under a trust" just because of the inclusion of such a clause. However, bad facts often lead to bad decisions, [Note 3: See Propep Inc. v. R., 2009 DTC 5170 (discussed below).] so I worry that the case that tests an issue will end up being the wrong one. Still, I would like to think a reasonable panel of judges and CRA officials would place sensible limits on paragraph (a) of the "beneficially interested" definition.
However, I think that the same reasonable panel of judges would find that where a trust includes a PARB, subclauses 248(25)(b)(iii)(A)(I)-(III) would likely result in anyone not at arm's length with the settlor/freezer being found to be beneficially interested in a trust with this type of power. Assuming that this is the case, then one needs to consider what provisions in the Act are impacted by a person's being beneficially interested in a trust (at least under paragraph (b)).
Interaction with s. 55(2) (p.2)
However, if the beneficially interested concept is applicable for purposes of subsection 55(2), then it appears that PARBs in trusts could cause those trusts to be unable to avail themselves of the exception to that provision, which might otherwise be available under paragraph 55(3)(a). The reason for this is that only trusts that meet the restricted related persons provisions in paragraph 55(5)(e) [Note 6: Generally, trusts where the only beneficiaries are the lineal descendants of an individual and/or registered charities, which is quite typical in many traditional Family Trust situations.] qualify for this exception. In this regard, although the CRA has indicated that "the concept of 'person beneficially interested' is irrelevant for the purposes of subparagraph 55(5)(e)(ii)", it also indicated that it "feel[s] that the right described in subparagraph 55(5)(e)(ii) I.T.A. and paragraph 248(25)(a) I.T.A. are fairly similar". [Note 7: See CRA document No. 2004-0086961C6, October 8, 2004.]
It is unclear whether the CRA's views regarding subparagraph 55(5)(e)(ii) would also be applicable to situations caught by paragraph 248(25)(b). Nevertheless, given the CRA's conclusion, it would appear that the inclusion of a PARB might well be problematic for the purposes of subsection 55(2).
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