Personal Trust

CRA indicated that the assumption by the beneficiary of debt of a personal trust owing to a bank would not preclude s. 107(2) applying to the distribution provided that such assumption did not result in the trust ceasing to be a personal trust (having regard to the question, not discussed by CRA, of whether such assumption constituted consideration for the acquisition of a beneficial interest in the trust). On this latter point, CRA stated:

Under subsection 248(1), a personal trust is defined, among other things, as a trust in which no beneficial interest was acquired for consideration payable directly or indirectly to the trust or to any person or partnership that has made a contribution to the trust by way of transfer, assignment or other disposition of property.

The question of whether the assumption by the beneficiary of the debt of the trust constitutes consideration for the acquisition of a beneficial interest in the trust is a question of fact which cannot be determined until after a review of all the facts and of the relevant documentation.

Each of the beneficiaries of an inter vivos trust ("Trust") which is not a unit trust will make an additional contribution of capital to Trust in proportion to their respective fixed entitlements to a percentage of trust capital and income. There is no agreement among then (nor any requirement under the trust deed) respecting additional capital contributions. Does CRA agree that the additional contributions would not constitute consideration payable for a beneficial interest in the Trust? CRA stated:

[W]e are unable to confirm… that the additional contributions of capital by the beneficiaries… should not disqualify the trust as a personal trust.

The assumption of debt of a trust by the beneficiary would not be considered to entail an acquisition of the beneficial interest in the trust for consideration payable to the trust and, accordingly, would not by itself cause the trust to lose its status as a personal trust.