2024 STEP Roundtable

A spousal trust that receives a contribution of capital after the death of the spouse-beneficiary remains a spousal trust, but the transfer will occur at fair market value and not on a rollover basis under subsection 73(1) of the Income Tax Act (Canada).

The property so contributed will be subject to the next deemed disposition of the property of the trust (21 years from the date of the death of the spouse-beneficiary per subparagraph 104(4)(b)(iii)). The deemed disposition of the property does not depend on when it was contributed to the trust.

Note that a spouse trust is not exempted from the deemed disposition even if all interests have vested (108(1) “trust” (g) and 104(4)(a)(i)).

Excess salary paid to a family member of a shareholder of a corporation is not included in the income of the family member under subsection 15(1) of the Income Tax Act (Canada) where the family member is not a shareholder or contemplated shareholder of the corporation. The excess is not included in the income of the shareholder under 15(1.4)(c) either.

If the family member is a shareholder, and the excess is received as a shareholder benefit, 248(28) will apply to ensure that 15(1) does not apply if the amount has already been included in income as salary. Similarly, the excess is not included in the income of the shareholder under 15(1.4)(c) either.

Is there an acquisition of control of a corporation if an unrelated person acts on behalf of a controlling shareholder under a power of attorney (“POA”) vis a vis the corporation?

The CRA answer includes a summary of what it regards as the key cases on corporate control. The CRA responded that, in its view, a POA is not an external document that must be taken into consideration in determining de jure control. It referred to its answer to question 17 at the 2012 APFF conference (2012-0454111C6).

The CRA noted that the POA might be relevant in applying 251(5)(b) and 256(1.4). See technical interpretations 2000-000825, 9814370 and 9726535.

The CRA confirmed that it continues to take the position that the replacement of an executor, administrator or trustee resulting from the person’s death or disability does not result in an acquisition of control. This position does not change if the replacement is an unrelated person (including a trust company).

The CRA confirmed that pipelines continue to be an acceptable form of post-mortem planning after the advent of the amended GAAR.

This set of questions relates to the conditions in subparagraphs 84.1(2.31)(f)(ii) and 84.1(2.32)(g)(ii).

The CRA confirmed that these subparagraphs will be satisfied if one child in a group of children who purchased shares meets the activity threshold throughout the relevant period. It does not need to be the same child throughout that period.

A child’s previous engagement in the operations of a relevant business is not relevant to the subparagraphs.

Finally, a child must meet the activity threshold for each relevant group entity.

The CRA found that 75(2) might not apply to an alter ego trust (AET) where the settlor was not entitled to capital distributions (including capital gains) during her lifetime and was one of only three trustees that ruled by majority vote. 75(2) might apply where the settlor’s retained a veto over trust decisions.

This set of questions relates to whether a bare trust must file a T3 where it held a bond that matured in the year and kept the proceeds for the remainder of the year or where it distributed the proceeds and dissolved.