CRA finds that s. 108(7) does not apply to qualify a usufruct trust as a personal trust where the usufruct was created for valuable consideration

S. 108(7)(b) provides that where all the beneficial interests in an inter vivos trust, which were acquired by way of transfer of property to it, were acquired by one person (s. 108(7)(a)) or by related persons (s. 108(7)(b)), their beneficial interests are deemed to have been acquired for no consideration (so that inter alia the trust can qualify as a personal trust). Where father transfers the bare ownership of land to his son for consideration, so that father becomes a usufructuary, ss. 248(3)(a) and (d) deem father to have settled a trust of which he and his son are the beneficiaries.

CRA considers that in this situation "as the bare owner did not transfer, assign or dispose of any property to the deemed trust… paragraph 108(7)(b) cannot apply to deem the beneficial interest of the bare owner to have been acquired for nil consideration." By referring to s. 108(7)(b), CRA is indicating that it considers that both son and father acquired their interests in the deemed trust as a result of the transfer of property by father to this deemed trust. On its face, s. 108(7)(b) only seems to require that both of these beneficial interests have been acquired by related persons (as is clearly the case for a father and son) and does not require that son have transferred any property to the deemed trust. Accordingly, this reasoning is difficult to follow.

Given the above finding that the trust is not a personal trust, the deemed wind-up of the deemed trust that would occur when son subsequently acquires father’s interest as usufructuary will (in CRA’s view) occur on a non-rollover basis under s. 107(2.1) (rather than under s. 107(2)).

Neal Armstrong. Summaries of 11 June 2015 T.I. 2014-0522641E5 F under s. 108(7), s. 73(3) and s. 110.6(1) – qualified farm or fishing property.