All About Estates

Trust distribution of Property

The Canada Revenue Agency (CRA) was asked if a distribution of certain property to beneficiaries is a taxable event, when an attribution rule (triggered by a beneficiary who contributed the property to the trust) ceases to exist?

A personal trust resident in Canada was settled with a gold coin. The capital beneficiaries of the trust included the settlor and his children. The trust obtained an arm’s length loan and used the proceeds of the loan to purchase securities from a vendor in an arm’s length transaction. The vendor is not a beneficiary of the Trust. The subsection 75(2) attribution rule applied with respect to the gold coin but never applied to the securities acquired with the loan proceeds. The Settlor is no longer alive.

In this case the CRA agreed that the subsection 75(2) attribution rule would apply – as a result, any distribution of property to a capital beneficiary (other than the gold coin to the Settlor), will trigger a taxable event (deemed fair market value sale of the securities by the trust). The CRA also added that since the settlor was not alive at the time of the distribution there would be no deemed fair market value sale by the trust and the remaining beneficiaries would assume the trust’s tax position vis a vis the securities.

Here is a way to minimize tax on the distribution of property from a personal trust.

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: