The authors use some examples to illustrate the application of the deeming rules in subparagraph 110.6(14)(c) that apply to trusts.
Example 1 Mr X incorporates Opco in 2015. He settles a family for himself and his family on February 23, 2019. He sold all of his Opco shares to the trust on January 31, 2021. The trust sold all of the Opco shares to a third party on June 30, 2021. The trust meets the 24-month holding period test.
Example 2 Same facts as in Example 1 except that the trust was settled on January 31, 2021. The trust still meets the 24-month holding period test.
Example 3 A trust is a beneficary of another trust.
Example 4 Corporation is a beneficiary of a trust.
The authors conclude:
If a trust has not been in existence for 24 months, it is important to ensure that subparagraph [110.6(14)(c)](ii) is complied with and that all beneficiaries of the trust are related to the person selling the shares, which means that no aunts, uncles, or cousins can be beneficiaries. Further, care should be taken if in-laws are included as beneficiaries; if there is a divorce, for example, an in-law may no longer be related to the original owner of the shares at the time of the third-party sale. However, if the trust has been in existence for more than 24 months, it can have beneficiaries who are not related to the transferor and still meet the conditions in subparagraph [110.6(14)(c)](i).
Carolin, Kakkar and Shadrin “Capital Gains Exemption Planning, Trusts, and the 24-Month Holding Period Rule” 21:3 Tax for the Owner-Manager (July 2021)
