Section 75

A trust lost its status as a tax-free savings account (“TFSA”) because it contravened the registration restriction on borrowing money. It continued to exist for several years after the borrowing occurred and was administered during that time by the TFSA issuer as though it were a TFSA. What was its treatment during that period?

After noting that when the arrangement ceased to be a TFSA pursuant to s. 146.2(5)(c), it had a deemed disposition of its property under s. 146.2(8), and that the trust ceased to be exempt pursuant to s. 149(1)(u.2) and ceased to be excluded from the application of s. 75(2) by s. 75(3)(a), CRA stated:

[T]he terms of a TFSA trust would provide that the holder of the TFSA is the only person permitted to make contributions to the trust, and that those contributions can revert back to the holder as the beneficiary of the trust. Consequently, subsection 75(2) may apply to attribute any income, losses, taxable capital gains or allowable capital losses of a trust that has lost its status as a TFSA to the individual who was formerly the holder of the arrangement.

Subsection 75(2) does not apply to income earned by a trust from the re-investment of income that was previously subject to attribution (i.e., second generation income), as this income is not earned on property contributed to the trust by a person (or substituted property). Thus, any second generation income earned by the former TFSA trust after deregistration will generally be taxable to the trust to the extent that it is not paid or payable to the beneficiary of the trust.

CRA acknowledged that, in Satoma, Noël CJ. noted that express exclusions in most of the attribution provisions (e.g., s. 74.1) of the attributed income in the hands of the income transferor were inserted for greater certainty, and that the same dividend cannot be received by two persons at once – with the implication that income attributed to a trust contributor under s. 75(2) is not income of the trust even in the absence of such a specific exclusion.

However, CRA indicated that these comments were not specifically directed at the T3 return, which is a return of information (in addition to a return of income) affecting the taxation of persons with some connection to the trust. Reg. 204 imposes a requirement to file a T3 return where the trustee has control of, or receives, income, gains, or profits in the trustee’s fiduciary capacity – even if the Trust computes nil income, e.g., because of the application of s. 75(2). The trust must still report the income on its T3 return and issue a T3 slip reporting the amount as that of the contributor of the property.

For taxation years ending after 2015, where the lifetime beneficiary of an alter ego trust dies, the trust will have a deemed year end on the beneficiary's day of death under s. 104(13.4). CRA indicated that if s. 75(2) applies, it does not attribute the gain to the beneficiary because the wording in s. 75(2) refers to the existence of the person. The deemed disposition that occurs on the person’s death occurs at the end of the day. The deceased is no longer with us, so s. 75(2) does not apply and the taxable capital gain stays in the trust.

If, on the other hand, s. 75(2) does not apply, then there will still be the deemed disposition at the end of the of death, but s. 104(6) provides a deduction for the trust for the amount of income that is paid or made payable to the beneficiary.

Under the terms of the trust indenture for a family trust, the settlor is one of two original trustees, all decisions must be made unanimously, the power to remove or replace (or appoint additional) trustees rests solely with the settlor while alive, as does the power to amend the terms of the trust indenture. Does s. 75(2) apply? CRA after noting its position in 2008-0292061E5 that s. 75(2) could apply “where the terms and conditions of a trust expressly require the contributor’s consent to any decision made by the trustees as a whole,” but this situation is not considered to apply “where the terms of the trust require the decisions of the trustees to be unanimous,” CRA stated:

[W]here the terms of a trust indenture require unanimous trustee decision making and are otherwise silent regarding the decision making power of the settlor/trustee, this fact alone does not lead to a presumption that subsection 75(2) will not apply. …

Before finding that each of ss. 75(2)(a)(i) and (ii) and (b) applied, CRA stated:

Given the settlor’s power to amend the trust and to remove any trustee, in our opinion the settlor is empowered in this case to unilaterally amend any provision of the trust indenture at their sole discretion. Such powers, in conjunction with the unanimous decision making requirement under the trust, support the view that the settlor/trustee effectively controls the trust.

In the course of a general discussion of the Canadian tax treatment of a taxpayer holding an interest in a U.S. “living trust,” CRA stated:

A U.S. revocable living trust is a trust that is usually controlled by and established for the benefit of those who created the trust (“grantors”) during their lifetime. … Where the grantor can change the terms of, or completely revoke the trust during their lifetime, they effectively retain control of the trust assets. Given this retention of control, it is our understanding that…any income generated by the trust would be reported by the grantors of the trust on a personal U.S. income tax return. …

After noting that the trust might be an excluded trust, CRA stated:

Where a person who has contributed property to the trust, maintains control over the trust property, (for example if the contributor is a beneficiary, which is generally the case in a U.S. revocable living trust) subsection 75(2)…. may apply. … Business income generated in the trust does not get attributed to the contributor under subsection 75(2)….

Reg. 204(1) provides that a trustee having control of or receiving income, gains or profits must file an information return – so that even though the property of the trust is subject to s. 75(2) so that its income is attributed to another person and the trust itself will have not tax payable, it still must file the T3 return. CRA stated that this return-filing requirement does not apply where the property of the s. 75(2) trust does not “not generate any income, profits or gains.”

Terms of New Trusts

Two new trusts (the “New Trusts”) are settled by Mr. A and Mrs. A, respectively. The trustees of each New Trust consist of the Family Trustees (initially, Mr. A, Mrs. A, and a child of Mr. A) and the Independent Trustees. During the lifetime of the settlor, no distribution of capital may be made, and income distributions may be made only to Mr. A and Mrs. A, with undistributed income being accumulated and added to capital. Following the death of the settlor, distributions may be made to other beneficiaries All interests will vest prior to 21^st anniversary of the New Trust (the “Vesting Date”). In the event the settlor is alive on the Vesting Date, the annual net income will vest in the settlor, and the trust capital will vest in one or more of the beneficiaries other than the settlor, prior to that date. The Trustees will generally adopt resolutions by majority vote, except that if there is a tie vote in which two Family Trustees vote together, their vote prevails.

Ruling

S. 75(2) will not apply as a result of the proposed transactions to the settled property or property substituted therefor.

Opinion

S. 104(4) will not apply to the New Trusts by reason of (g) of s. 108(1) – trust.

A corporation sold the usufruct respecting a property to an arm’s length third party for use as a secondary residence, while retaining the bare ownership, and with the usufruct ending when the bare owner redeemed the rights belonging to the usufructuary. CRA provides a general discussion of the application of the Act to the deemed contribution of property to a trust of which the bare owner and usufructuary are the beneficiaries, and of the application of s. 107(2.1) to the winding up of the trust in connection with the termination of the usufruct. In this regard, CRA stated:

By virtue of paragraph 107(2.1)(a), the trust is deemed to have disposed of the property for proceeds equal to its FMV. Where the Grantor of the usufruct is also the bare owner, subsection 75(2) applies. Thus, the taxable capital gain or allowable capital loss from the disposition of the property by the trust is deemed to be a taxable capital gain or allowable capital loss of the Grantor of the usufruct.

5(a)

When a rental property has been transferred to a trust, is rental income attributed to the transferor under s. 75(2) transformed into trust property income under s. 108(5), so that the "earned income" of the transferor will not be increased for "RRSP deduction limit" purposes?

5(b)

X, who is the sole beneficiary of a protective trust, holds voting shares of a corporation giving him control thereof, with the trust holding retractable shares (previously gifted to it by X) having a nominal paid-up capital and an adjusted cost base equal to their redemption amount. On its retraction of its shares, a deemed dividend is attributed to X under s. 75(2) and its capital loss is deemed to be nil under s. 40(3.6)(a). Is the capital loss as computed before the application of s. 40(3.6) attributed to X or to the protective trust, and is it added to the ACB of the trust's or X's shares – and would the answers change if all the shares were held by the trust?

CRA responded (TaxInterpretations translation):

…5(a)… Subsection 108(5) does not have the effect of modifying the application of subsection 75(2). In our view, the net rental income from the lease of the real property transferred to the trust...preserves its nature and the transferee must include this net rental income in his or her return of income. … For purposes of calculating the "RRSP deduction limit" of the person subject to subsection 75(2) …the income from the rental property…is included in his or her "earned income"… .

…5(b)…A loss deemed to be nil under paragraph 40(3.6)(a)(i) cannot be attributed to anyone. The amount of such loss is subject to the rules set out in paragraphs 40(3.6)(b) and 53(1)(f.2). ... Assuming that, after the redemption...the trust still holds at least one share...the amount of the loss should be added in computing the adjusted cost base of a share of a class of the capital stock of the corporation held by the asset-protection trust immediately after the disposition, in accordance with...paragraph 40(3.6)(b). In effect, the taxpayer subject to subsection 40(3.6) is the asset-protection trust.

A loss which is deemed to be nil by virtue of paragraph 40(3.6)(a) is not attributable to anyone. … On the assumption that after the retraction of the shares…held by the protective trust, it continuously holds at least one share…, the amount of the loss must be added in the calculation of the adjusted cost base of a share…held by the protective trust immediately after the disposition… . In effect, the taxpayer subject to subsection 40(3.6) is the protective trust.

Property settled on a trust includes an LP interest. On termination of the trust, the trust property will revert to the settlor. Will s. 75(2) not apply to business income of the LP allocable to the trust? CRA stated:

Where the partnership earns property income such as interest or dividend income and in accordance with the partnership agreement the trust is allocated such property income, that income will flow through to the trust and will be attributable to the [settlor]… . The business income that flows through to the trust from the limited partnership will not be attributed to the settlor.

2010-036630117 concerned the sole trustee and capital beneficiary of a trust (the taxpayer) who, had

transferred property to the trust by accepting undervalued freeze shares as consideration when growth shares were issued to the trust. It was our view that because the growth shares could revert back to the taxpayer, subparagraph 75(2)(a)(i) applied, and furthermore, because he was the sole trustee, both 75(2)(a)(ii) and 75(2)(b) were also applicable.

An "evil trust" is structured to deliberately cause the application of subsection 75(2), so as to cause the attribution of dividend income to a connected corporation, where the income will not be taxable, while at the same time distributing proceeds in the form of cash by way of either a capital distribution or a loan to the intended recipient. Brent Kern Family Trust was recently decided by the Tax Court on the basis that the principle in Sommerer applied, and subsection 75(2) did not apply. Can CRA comment? CRA stated:

Given that the Brent Kern Family Trust decision [2013 TCC 327] is currently under appeal, it would be inappropriate to comment at this time as to the specifics of that case. … [The] trust structures designed to purposely invoke attribution pursuant to subsection 75(2), with a view to avoiding the payment of tax on extracted corporate dividends …typically involves two Canadian corporations and a trust that acquires shares in one of the corporations ("Corp A"). In some cases, the acquisition is by subscription for the Corp A shares using cash contributed to the trust by the other corporation ("Corp B"), or the arrangement may involve having Corp B contribute shares of Corp A that it holds directly to the trust. In either case, when Corp A subsequently declares a dividend on the shares held by the trust, the scheme is intended to attribute the dividend income to Corp B, which then claims an offsetting deduction under section 112.

In some of these arrangements, the facts have led to a conclusion that the trust acquired the shares for fair market value consideration (perhaps by transferring cash to Corp B on the acquisition of the Corp A shares from it). ... CRA agrees with the general proposition that where property is transferred to a trust by a beneficiary for fair market value consideration, subsection 75(2) will not apply to attribute income in respect of that property to the beneficiary.

In the alternative, if the facts are such that it may be concluded that the trust did not acquire the shares for fair market value consideration, CRA will typically challenge the arrangement on other grounds. Depending on the particular facts, assessments may be pursued to include the dividend income pursuant to paragraph 12(1)(j) or subsection 104(13), in calculating the income of the trust and/or its beneficiaries. Furthermore, CRA would typically hold the view that a strong GAAR argument would exist in support of an assessing position in such cases.

Corp transferred its limited partner interest in a limited partnership ("SEC") to Trust. It then applied s. 75(2) to attribute to itself the business losses of SEC, which were allocated to Trust under the SEC partnership agreement. In rejecting this approach, the Directorate stated:

For the purposes of subsection 75(2), the CRA's interpretation is not to attribute business income or loss. This interpretation is based on Robin v. M.N.R. ... and Fraser v. The Queen ... . Furthermore, paragraph 5 of Interpretation Bulletin IT-369R provides that subsection 75(2) does not apply to attribute business income or losses even if the business operates with some or all of the property received from the particular taxpayer.

In addition, there is no provision of the Act that allows a business loss of a trust to be allocated to its beneficiary. In particular, a trust cannot allocate capital losses and non-capital losses to its beneficiaries, except for capital losses of a trust subject to subsection 75(2).

The will of Mr. X provided for the bequeathing of some of his property to family inter vivos discretionary trusts. The liquidator (i.e., executor) of Mr. X's succession (i.e., estate) also is a beneficiary of the inter vivos trusts. Is Mr. X (rather than the liquidator) the "person" referenced in s. 75(2)(a)(i), so that s. 75(2) does not apply to X.

In responding affirmatively, CRA first noted that Sommerer had quoted a statement that "only a settlor, or a subsequent contributor who could be seen as a settlor, can be the 'the person' for purposes of subsection 75(2), CRA stated:

[I]t would be reasonable to consider Mr. X to be the "person" for the purposes of subsection 75(2) in relation to the trust (succession). Since Mr. X is deceased, the provisions of subsection 75(2) would not apply to attribute to an heir or legatee any income or loss from the property ... .

...Finally, assuming that the mandate given to the liquidator in Mr. X's will is that described in Article 802 of the CCQ ... and that, within the course of the liquidator’s mandate, additional powers were not granted to him respecting the disposition of properties or their distribution, it appears to us that subsection 75(2) could not apply to the latter if he is also a beneficiary of the inter vivos trust.

Mr. X, who holds all the common shares of Corporation, exchanges his common shares under s. 51 for preferred shares having an equivalent fair market value and subscribes for common shares having a nominal value. He then sells the new common shares at their fair market value to a trust of which he is the beneficiary but not the settlor. Alternatively, he sells a rental property to the trust an takes back an interest-bearing or non-interst-bearing unpaid balnce of the trusty. Does s. 75(2) apply respecting the sale of either property (the "Property")? What if there is a price adjustmetn clause which then is engaged? CRA stated (TaxInterpretations translation):

Taking into account…Sommerer, the sale of the Property by Mr. X to Trust, at a stipulated price and for consideration equal to its FMV, does not result in the income from the Property being attributed to Mr. X by virtue of ITA subsection 75(2). However, the Property acquired by Trust must not be a property substituted for a property otherwise contributed by Mr. X. ...

[T]he CRA will recognize a price adjustment clause in computing the income of all parties where all of the conditions described in paragraph 1.5 of the Folio are met.

Respecting whether CRA accepted Sommerer, it stated that the decision stood:

for the general proposition that where property is transferred to a trust by a beneficiary of the trust in return for consideration that constitutes a fair market value, subsection 75(2) will not apply to attribute income in respect of that property to that beneficiary.

Respecting the statement of Sharlow JA that the Crown's interpretation of s. 75(1) was "wrong because it is based on the incorrect premise that 75(2) can apply to a beneficiary of a trust who transfers property to the trust by means of a genuine sale," CRA stated:

As was noted in H. W. Liebig & Co. v Leading Investments Ltd., [1986] 1 S.C.R. 70, "the primary meaning of sale is the transfer of property to another for a price." …[T]he FCA…had a more definitive concept in mind when it referred to a bona fide or genuine sale.

A trust, that was subject ot s. 75(2), incurred losses from stock trading, and treated the resulting losses (which CRA had accepted had been sustained on income account) as having been attributed to the settlor under s. 75(2). CRA stated:

For the purposes of subsection 75(2), the CRA's interpretation is not to attribute business income or loss. This interpretation is supported, inter alia, by the comments of the Exchequer Court in Robins v. M.N.R. [63 DTC 1012 at 1014]. ...

If the losses realized by Trust arose from an adventure in the nature of trade, we are of the view that these losses are business losses. As a result, such losses cannot be attributed to the Settlor by virtue of subsection 75(2).

The financial advisor of Mother settled a discretionary trust of which Mother and her friend (Y) were the trustees (with decisions to be made unanimously), and she, her issue and certain corporations (including Holdco) were the beneficiaries. Under an estate freeze, Trust was issued Class A shares of a corporation that became a small business corporation. Y had no real involvement in Trust decisions. Mother determined to make annual income distributions to her adult children, and then required them to repay most of those amounts to her in repayment of amounts for their personal expenses (e.g., rent) which she had paid on their behalf.

In finding that dividends on the Class A shares paid to the Trust could not be attributed to Mother under s. 75(2), CRA stated:

Since a corporation does not own its own shares prior to their issuance, it follows that the issuance of shares by a corporation to a trust for consideration equal to their FMV generally does not constitute a transfer of property to which subsection 75(2) could apply. According to … Kieboom …, subsection 75(2) could, however, apply where the shares are not subscribed for consideration equal to their fair market value. There is nothing in the Facts to allow us to conclude that Mother transferred any additional economic interest or additional … value to Trust at the time of the freeze.

An individual disposed of capital property to a discretionary trust (whose beneficiaries were the individual and spouse and their children) in consideration for property (other than a debt obligation) having the same fair market value. One year after the sale, the trust disposed of the capital property to a third party and distributed and allocated the resulting taxable capital gain to the spouse under s. 104(21). How would ss. 74.2(1) and 74.5(1) apply? After discussing the potential non-applicability of the s. 74.2(1) attribution rules, CRA stated:

[T]he CRA generally considers the condition in subparagraph 75(2)(a)(i) to be satisfied where a person from whom property was received directly or indirectly by a trust holds a capital interest (whether or not subject to discretion) in that trust.

In finding that s. 75(2) did not apply to an estate freeze effected by Father in relation to shares of Holdco in favour of a family trust (the Trust), the Directorate stated:

As a corporation is not the owner of its own shares before their issuance, it follows that such issuance by the corporation to a trust for consideration equal to their FMV does not generally constitute a transfer of property to which subsection 75(2) can apply. Following the case of The Queen v. Kieboom, 92 DTC 6382 (FCA), subsection 75(2) nonetheless could apply when the subscription for the shares is not for consideration equal to their FMV.

Consequently ... subsection 75(2) would not apply ... .. In fact, Holdco did not own the shares subscribed by Trust at the time of the freeze. Moreover, there is nothing in the Facts to suggest that Father transferred any additional economic interest or additional value of Holdco to Trust at the time of the freeze.

The trustees of a Quebec trust exercise their discretionary power in order to allocate an amount of income or taxable capital gain to a minor child beneficiary. The amount is paid by issuing a non-interest bearing promissory note while the funds representing the income or taxable capital gain are left in the trust and reinvested. CRA was asked:

If the funds are left in the trust but are reinvested and notionally belong to the child, does...CRA..consider that subsection 75(2) of the Act applies to such funds because the minor child may be considered to be a contributor?

CRA indicated that if the funds in fact had been made payable to the benficiary by means of the proisssory note, it was not appropriate to treat such funds as only "notionally" belonging to the child.

The question described a situation where most of the income generated by a discretionary family trust was generated from investments made out of the proceeds of a loan made to the trust by Mr. X at the prescribed rate of interest and pursuant to a written loan agreement, and then asked whether s. 75(2) would apply if Mr. X was a beneficiary or the sole trustee of the trust. CRA responded (TaxInterpretations translation):

Provided that the loan made by Mr. X to the trust is, in accordance with the true legal relationship between the parties, legally a loan rather than a contribution of capital to the trust, the fact that Mr. X was a beneficiary or a trustee of the trust, as the case may be, would not be itself result in the application of subsection 75(2).

A taxpayer (the “freezor”) exchanges his common shares of a corporation for preferred shares of the same corporation, with the purchase price and the value of the preferred shares being subject to a price adjustment clause. (New) common shares of the corporation then are issued to a discretionary family trust. The questioner referred to 2010-0366301I7, where CRA found that s. 75(2) applied to an estate freeze as the undervaluation of the common shares constituted a transfer of share rights attributable to existing equity in the corporation by the freezor to the trust, and that the price adjustment clause related to the issue of the freeze shares was of no assistance to the freezor because at no time were the original proceeds represented by the freeze shares adjusted pursuant to that clause. CRA stated that “in that situation, the taxpayer had not adjusted the price in accordance with the price adjustment clause and it was too late to do so.” CRA then stated:

It is therefore incorrect to conclude that a taxpayer will never be able to rely on a price adjustment clause in the event of a CRA assessment under subsection 75(2).

The CRA will review each situation in determining if a price adjustment clause is valid. In the case of an estate freeze, if the price adjustment clause is valid and the taxpayer makes the necessary changes to the price of the common shares, the redemption value of the freeze preferred shares received and the amount that would have been received for the redeemed freeze preferred shares (by arranging for the corporation to make a refund or payment for the difference, as the case may be), the CRA will consider the tax consequences of the freeze taking into account that clause. Those tax implications will include consideration of the conditions for the application of subsection 75(2).

The correspondent asked how to report income attributed to a non-beneficiary settlor under s. 75(2). CRA stated:

Where income is allocated pursuant to subsection 75(2), a T3 information slip must be prepared in respect of the income attributed and issued to the person or persons to which the income is attributed.

All T3 income amounts are entered on the appropriate rows and columns of part A of schedule 9 of the T3 return. A statement showing the amount of income attributed to the person or persons must be submitted with schedule 9. The total of all allocations and designations, including those made to beneficiaries, on line 928 is transferred to part A of line 47 of the T3 Trust Income Tax and Information Return. All allocations and designations are therefore deducted from the trust's income by way of line 47 of the return.

CRA also stated that allocated taxable capital gains are not included in the trust's adjustable taxable income for the purpose of calculating Alternative Minimum Tax.

Although CRA does not apply s. 75(2) to a genuine loan of cash to the trust, this position does not extend to a loan of income-producing property to the trust or to the situation where a capital beneficiary of a trust transfers property to that trust, regardless of whether or not the capital beneficiary receives fair market value consideration.

Ruling re attribution of income to a First Nation (which was exempt under s. 149(1)(c)) from investments transferred by it and exclusion of such attributed income from income of the trust with the remainder of the income of the trust (particularly income on reinvested income) being deductible under s. 104(6)(b).

A trust of which the settlor and family members are beneficiaries uses the settlement proceeds to buy a net profits interest in a particular oil and gas property. The trust does not have involvement in the operations or management of the property and the property's acquisition is not incidental to and does not pertain to an active business carried on by it.

Income generated by the net profits interest would be subject to the application of s. 75(2).

A Nova Scotia company limited by guarantee would not constitute a trust for purposes of s. 75(2). Corporations incorporated under the Nova Scotia Companies Act are corporations for purposes of the Act.

Where the settlor of a trust changes his common shares of a corporation into preferred shares and the trust then subscribes for common shares, s. 75(2) generally would apply if the subscription price was less than the shares' fair market value.

Discussion of when a loan of money by a parent to a trust will qualify as a "genuine loan" so that s. 75(2) does not apply.

RC noted that, notwithstanding a previous memorandum, it was now its position that "in circumstances where the conditions for the application of both subsection 94(1) and subsection 75(2) of the Act are fulfilled ... the provisions of subsection 75(2) of the Act will apply first".

Unlike s. 94(1), there is no mechanism for the utilization of foreign tax credits by a person to whom income is attributed under s. 75(2).

S.75(2) would apply where under the trust agreement, decisions are made by majority vote and the affirmative vote of the settlor must be included in the vote.

Where contributions made by members of a union to a benefit plan (that was established by the union in accordance with a collective agreement), are paid into a trust created to receive the contributions, the income earned by the trust on the contributions received will not be attributed to the union under s. 75(2)(a)(i) where (based on a reading of the trust indenture) the contributions represent property received from the members of the union and not from the union itself.

S.75(2) would not apply where a trust acquires a property from an arm's length vendor (who is not a trustee or beneficiary of the trust) in consideration for a vendor take-back mortgage which restricts the ability of the trust to sell the property during the one-year term of the mortgage without the consent of the vendor.

"Where subsection 75(2) of the Act applies to attribute income to a person, that income is never income of the trust for tax purposes and consequently it cannot be taxable through the trust nor can it be paid or payable to any beneficiary of the trust pursuant to subsection 104(13) of the Act. The attributed income therefore becomes capital of the trust."

Where the terms of the sale of the property to the trust require the trust to pay to the vendor the amount of income tax payable on any income attributed to her pursuant to s. 75(2), there will be no income inclusion to the vendor pursuant to either s. 105(1) or 12(1)(x).

S.75(2) will apply where the terms of the trust provide that the transferor of property to the trust (including a transfer for fair market value consideration) may have the property revert to her under the terms of the trust where the last of the other beneficiaries under the trust dies. However, where the trust may revert only by operation of law, eg., a total failure of the trust for lack of beneficiaries, and not pursuant to any condition under the trust indenture, s. 75(2) will not apply.

Where a trust indenture allows the settlor to reacquire the contributed property, s. 75(2) will apply even where the relevant provision can apply only in remote circumstances.

A loan to a trust which is a genuine loan as discussed in IT-258R2, paragraph 8 and IT-260R, paragraph 3 would not be considered to result in property being held in trust on any of the conditions listed in ss.75(2)(a) and (b).

S.75(2) would apply if the transferor retains the power to veto distributions of property to beneficiaries or could select beneficiaries from a predetermined class. Ss.75(2)(a)(ii) and 75(2)(b) might not apply if the transferor could not determine the identity of the beneficiaries but could only determine the amount of the trust property to be distributed to the beneficiaries identified by the trust documents.

Where unanimity was required in respect of any decision by the two trustees of a trust and the settlor was a trustee, s. 75(2)(b) would apply.

S.75(2)(b) also will apply where loan proceeds were used to acquire property from a parent, and the parents controlled the trust property as trustees or under the terms of the loan.

S.75(2) can apply by virtue of a right of the contributor of property to reacquire that property at fair market value.

S.75(2) will apply where the settlor is able to select additional beneficiaries or delete beneficiaries after the creation of the trust.

S.75(2) will apply where the settlor, in his capacity of sole trustee, has the discretion as to whom the trust property will be distributed on a distribution date out of a class of beneficiaries specified in the trust deed.

Father settles an irrevocable trust of which he is the sole trustee and whose terms are totally discretionary as to income and capital payments, and his beneficiaries are his adult children. The trust indenture provides that the trust will continue until the earlier of father's death or the day upon which father terminates the trust, at which date the trust capital is divided equally among the beneficiaries then alive. Because father can exercise control over the disposition of the trust property, s. 75(2)(b) could apply.