Section 251.1

Subsection 251.1(1)

Administrative Policy

18 February 2002 External T.I. 2001-004607 -

Reiteration of CCRA policy that a trust is affiliated with another trust if it has the same trustee, or with a corporation which is controlled by the trustee.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) "unless context otherwise requires" 67

Paragraph 251.1(1)(a)

Cases

Miller Estate v. Canada (Attorney General), 2002 DTC 7577, 2002 FCA 445

An estate was unsuccessful in a submission that, by virtue of a court order which restricted the distribution or administration of the estate, the estate had lost control of the three corporations in issue. Such order did not restrict the power of the executors to elect the board of directors of the corporations.

Paragraph 251.1(1)(b)

Administrative Policy

2009 Ruling 2008-0289771R3 - Loss Consolidation

A corporation ("Lossco") that was controlled by an individual ("X") was accepted as being affiliated with a corporation ("Opco") that was held by a partnership of which the general partner was a corporation controlled by X (and one of whose limited partners was a corporation controlled by X).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) iteration of loss transactions 72

6 March 2001 External T.I. 2000-006250 -

Where an estate has de facto control of a corporation (Holdco) by virtue of control of a corporate trustee which holds all the voting shares of Holdco, s. 40(3.6) will apply to deny a loss on a redemption by Holdco of preferred shares held by the estate.

5 March 2001 External T.I. 2000-007079 -

A trust of which Mr. A is the sole trustee is affiliated with a corporation controlled by Mr. A in his individual capacity.

Paragraph 251.1(1)(c)

Administrative Policy

4 September 1997 T.I. 971006

The taxpayer described a structure in which the individual wholly-owning shareholder ("X") of "Xco" held 65% of a corporation ("Zco") which held all the GP units of two limited partnerships which, in turn, held two corporations ("Aco" and "Bco"). The limited partners (including Xco) had no voting rights in their capacities of limited partners of the partnerships. The taxpayer asked whether Xco, Aco and Bco were affiliated. The Directorate declined to address this question directly because it "was too specific" but stated:

"The principle enunciated in Vineland Quarries applies where the intermediate shareholder is either a corporation or a partnership. In other words, where a partnership owns more than 50% of the issued voting shares of a corporation and where a particular partner is entitled, without restriction, to exercise more than 50% of the votes that may be cast at a meeting of the partnership, it is our view, that the particular partner controls the corporation."

Paragraph 251.1(1)(d)

Administrative Policy

15 January 2014 External T.I. 2013-0515651E5 F - Affiliated persons

control by a person is not control by a group of persons

A corporation is controlled by one person who also is a majority-interest partner of a partnership.

The corporation and partnership would not be affiliated under s. 252.1(1)(d), in light of the Southside principle that " Where one person controls the corporation, it is not possible to identify a group that controls the corporation." However, the corporation and partnership would be affiliated under s. 252.1(1)(e) in light of the definition of majority interest partner. Furthermore, if the partnership had de facto control of the corporation, they would also be affiliated with each other under s. 251.1(1)(b)(i).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(e) corporation is affiliated with partnership of which its controlling shareholder is a majority-interest partner 73

Paragraph 251.1(1)(e)

Administrative Policy

15 January 2014 External T.I. 2013-0515651E5 F - Affiliated persons

corporation is affiliated with partnership of which its controlling shareholder is a majority-interest partner

Where a corporation is controlled by one person who also is a majority-interest partner of a partnership, the corporation and partnership would be affiliated under s. 252.1(1)(e) in light of the definition of majority interest partner:

Since the corporation was affiliated with its controlling shareholder by virtue of subparagraph 251.1(1)(b)(i) and the shareholder was a majority-interest partner of the partnership, the corporation would also be considered a majority-interest partner of the partnership.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(d) control by a person is not control by a group of persons 95

Paragraph 251.1(1)(g)

Administrative Policy

5 October 2012 Roundtable, 2012-0453181C6 F - Person affiliated with RESP and RDSP

both a subscriber and beneficiary of RESP can be affiliated with such trust

Is it the contributor to an RESP or instead the beneficiary who is affiliated with that plan, or potentially both? What about an RDSP?

CRA first noted that a trust and a majority-interest beneficiary are affiliated under s. 251.1(1)(g)(ii), that s. 251.1(3) provides that a beneficiary includes a person beneficially interested in the trust as broadly defined in s. 248(25), noted that s. 251.1(1)(g)(ii) provides that a person and a trust are affiliated if the person would be affiliated with a majority-interest beneficiary of the trust in the absence of paragraph 251.1(1)(g) (e.g., a spouse), that in light of s. 251.1(4)(d)(i) (respecting deemed exercise of discretion) a subscriber and a beneficiary of an RESP Trust could each be a majority-interest beneficiary of that trust and, thus, each affiliated with it per s. 251.1(1)(g)(i), and then stated:

In the case of a so-called family plan, that is, an RESP Trust allowing the subscriber, subject to certain conditions, to appoint more than one beneficiary, each beneficiary will generally be deemed to be a majority-interest beneficiary of the RESP Trust pursuant to subparagraph 251.1(4)(d)(i) and will generally be affiliated with the RESP Trust.

Similarly, any person that would be affiliated with a majority-interest beneficiary of an RESP Trust in the absence of paragraph 251.1(1)(g), should generally be affiliated with that RESP Trust. …

Finally, any person who would be affiliated with a majority-interest beneficiary in a particular RDSP Trust in the absence of paragraph 251.1(1)(g), should generally be affiliated with such trust.

Subparagraph 251.1(1)(g)(ii)

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Limited scope of s. 251.1(l)(g)(ii) (p. 134)

Subparagraph 251.1(l)(g)(ii) provides that a trust is affiliated with a person that would be affiliated with a majority-interest beneficiary if subsection 251.1(1) were read without paragraph 251.l(l)(g). Accordingly, two trusts are not affiliated simply because they share the same majority-interest beneficiary. The explanatory notes to subparagraph 251.1(l)(g)(ii) state that-the provision was intended to ensure that a trust would be affiliated with another trust when the first trust controlled a corporation that was a majority-interest beneficiary of the second trust. On the basis of the CRA's interpretation of majority-interest beneficiary, subparagraph 251.1(1)(g)(ii) is relevant only in determining whether two trusts are unaffiliated.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(d) 437
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 141
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(3) - Paragraph 251.2(3)(b) 112
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d.1) 161
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 1201
Tax Topics - Treaties - Income Tax Conventions - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - (2)-(41) 157
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) 199
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(6) 174
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) 144
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379

Subsection 251.1(3) - Definitions

Contributor

Administrative Policy

25 August 2015 External T.I. 2015-0571271E5 F - Affiliated Trusts under Paragraph 251.1(1)(h)

deceased settlor of Trust B was an affiliated contributor to her brother, who contributed to Trust A

Mr. X was the settlor and is sole beneficiary of Trust A and is its trustee along with his brother. The trustees of Trust B, which was a discretionary trust settled by "Sister X" of Mr. X (apparently out of her estate, as she also is stated to have died before the formation of Trust B), are Mr. X and his brother, and its beneficiaries are Mr. X and his spouse and children. Trust A and B are the respective sole shareholders of Corporations A and B. Are Corporations A and B affiliated for purposes of s. 69(11)?

After noting that, under ss. 251.1(1)(c)(i) and 251.1(4)(c), the two corporations would be affiliated if they were controlled de jure by affiliated trusts, and whether the two trusts were affiliated under s. 251.1(1)(h)(i) turned, in part, on whether Sister X, who had been related to Mr. X, could be considered to still be aa affiliated "contributor" to Trust B, as defined in s. 251.1(3), CRA stated (TaxInterpretations translation):

[B]ased on…2014-0534851C6, …when it is necessary to determine if a contributor to a trust is affiliated to the contributor to another trust for purposes of paragraph 251.1(1)(h), a deceased person should be assimilated to the "persons" referred to in subparagraph 251.1(4)(d)(iv).

…Mr. X and Sister X would be persons related by blood by virtue of paragraph s. 251.1(6)(a) and they would be deemed to be affiliated to each other by virtue of subparagraph 251.1(4)(d)(iv). Furthermore, Mr. X, as sole beneficiary of Trust A, would be a majority interest beneficiary of Trust A. Mr. X would also, by virtue of subparagraph 251.1(4)(d)(i), be a majority interest beneficiary of Trust B…

… Trust A and Trust B would thus be affiliated…by virtue of subparagraph 251.1(1)(h)(i)… .

Consequently, Corporation A and Corporation B also would be affiliated… .

10 October 2014 APFF Roundtable Q. 5, 2014-0534851C6 F - 2014 APFF Roundtable, Q. 5 - 251.1(3) Definition of "contributor"

contributor includes decedent

Unlike the s. 94(1) definition, the s. 251.1(3) definition does not specify that a contributor includes a decedent. Is one included? CRA responded (TaxInterpretations translation):

[D]epending on the context, a deceased person could be considered as having at any time made, a loan or transfer of property, either directly or indirectly, in any manner whatever, to or for the benefit of a trust. This position applies to transfers of property made as a result of the death of a taxpayer and to inter vivos loans or transfers of property made by a taxpayer prior to his or her death.

Majority-interest beneficiary

Administrative Policy

10 October 2014 APFF Roundtable, 2014-0534841C6 F - Majority-interest beneficiary

includes affiliates with no actual beneficial interest in trust

Where a person is not a beneficiary, but it affiliated with a beneficiary with a majority interest in a trust, is that person also included in the definition of "majority-interest beneficiary"? CRA stated (TaxInterpretations translation):

A person (other than a trust [later referencing s. 251.1(4)(d)(iii)]) which does not have an interest qua beneficiary in the income nor an interest qua beneficiary in the capital of a trust could be a majority interest beneficiary in certain cases. This is the case if such person is affiliated with a person or persons who have interests qua beneficiary in the income of the trust having a fair market value exceeding 50% of the fair market value of all the interests qua beneficiary in the income of the trust or who have interests qua beneficiary in the capital of the trust having a fair market value exceeding 50% of the fair market value of all the interests qua beneficiary in the capital.

The Explanatory Notes example (re Philip and Muriel) on s. 251.1(3) confirms this interpretation.

Subsection 251.1(4)

Paragraph 251.1(4)(d)

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Affiliation of discretionary beneficiary with trust (p. 133)

[W]hen the person has a discretionary interest in the income or capital or a trust, discretion is deemed to have been exercised in favour of the beneficiary pursuant to paragraph 251.1(4)(d). Thus, a discretionary beneficiary of a trust is generally affiliated with the trust. The CRA has interpreted paragraph 251.1(4)(d) broadly and found that a charity is a majority-interest beneficiary of a trust when the trustee has the discretion to make a gift to the charity under the declaration of trust.[fn 54: 2009-0308611R3….] This interpretation may not be correct as a matter of trust law. A trustee's power to make a gift to a charity does not necessarily mean that the charity has an interest as a beneficiary in the trust, because it is unclear whether the charity has the power to compel the administration of the trust, which is generally recognized as a necessary condition for a person to be considered a beneficiary.

Uncertain application of loss-restriction rules (pp. 153-4)

The application of the loss restriction event rules to discretionary trusts is unclear. Paragraph 251.1(4)(d) deems a discretionary beneficiary of a trust to be a majority-interest beneficiary in determining whether a person and a trust are affiliated. Paragraph 251.1(4)(d) does not deem a discretionary beneficiary to be a majority-interest beneficiary for the purposes of the Act, or for the loss restriction event rules in section 251.2. From a policy perspective, the extension of the loss restriction event rules to trusts was primarily intended to stop the acquisition of SIFT' trusts with accrued losses by corporations. This policy concern does not apply to discretionary family trusts. More generally, as discussed in chapter 1, a discretionary beneficiary's interest is not assignable as a matter of law, and consequently loss trading is unlikely to occur between arm's-length persons through a discretionary trust. If paragraph 251.1(4)(d) applied for the purposes of the loss restriction event rules, then a family trust for the benefit of issue of the settlor could conceivably have a- loss restriction event every time a new beneficiary is born. We understand that the Department of Finance intends to provide clarifying amendments to determine when and if a discretionary beneficiary is a majority-interest beneficiary of a trust for the purposes of the loss restriction event rules.

Loss restriction event on addition of charity or distant relative as beneficiary (p. 157)

[C]ommentators have noted that the exercise of discretion by a trustee to add a charity or distant relative as a beneficiary could result in a change in the majority-interest beneficiaries and thereby result in a loss restriction event for the trust….

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) - Subparagraph 251.1(1)(g)(ii) 115
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 141
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(3) - Paragraph 251.2(3)(b) 112
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d.1) 161
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 1201
Tax Topics - Treaties - Income Tax Conventions - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - (2)-(41) 157
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) 199
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(6) 174
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) 144
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379