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Trust Beneficiary Doesn't Need to Meet CGE Holding Period Test - by Deb MacPherson 

Canadian Tax Adviser


September 04, 2012


Deb MacPherson
Calgary, National Enterprise Tax Leader


In a recent technical interpretation, the CRA stated that when an individual has been a beneficiary of an inter vivos trust for less than 24 months, he or she may still be able to claim the capital gains deduction for a taxable capital gain designated by the trust. The CRA noted that the deduction may be available where the trust meets the 24-month holding period discussed in the definition of "qualified small business corporation" (QSBC) share.

An inter vivos trust (Trust) is resident in Canada and the trustee has the power to allocate income or capital to the beneficiaries as required. Trust has owned QSBC shares of a Canadian-controlled private corporation for several years. The trustee intends to have the trust sell the shares and designate the resulting net taxable capital gain, in accordance with subsections 104(21) and 104(21.2), to a Canadian resident individual who has only been a capital and income beneficiary of Trust for 12 months prior to the share sale.


At issue is whether a taxpayer/beneficiary who has only been a beneficiary of Trust for 12 months prior to the sale could claim a capital gains deduction under subsection 110.6(2.1) in these circumstances.


Very generally, where a Canadian resident individual, other than a trust, realizes a taxable capital gain on the disposition of a QSBC share, that individual may be entitled to a capital gains deduction under subsection 110.6(2.1) of the Act, provided he or she meets certain conditions.


For a share of a corporation to be considered a QSBC share, paragraph (b) of that definition in subsection 110.6(1) requires that the particular share was owned by the particular individual or a person or partnership that was related to the individual at any time throughout a period of 24 months immediately preceding the determination time (i.e., the Holding Period Test). However, where a personal trust designates an amount to a beneficiary in respect of its net taxable capital gains from a disposition of QSBC share for a taxation year under subsections 104(21) and (21.2), the beneficiary is deemed to have a disposition of a capital property that is a QSBC share for the purposes of sections 3, 74.3 and 111 as they apply for the purposes of section 110.6.


"Personal trust", defined in subsection 248(1) of the Act, includes an inter vivos trust where no beneficial interest in the trust was acquired for consideration payable directly or indirectly to the trust or to a person who has contributed to the trust by way of transfer, assignment or other disposition of property.


CRA comments
The CRA noted that the determination of an individual's ability to claim a capital gains deduction remains a question of fact. However, as long as the particular personal trust meets the Holding Period Test, the CRA stated that the designated beneficiary would not necessarily be precluded from claiming a capital gains deduction solely because he or she was not a beneficiary of the trust throughout the entire 24-month period before the trust sold the QSBC shares.


For more information, contact your KPMG adviser.







Information is current to September 04, 2012. The information contained in this Canadian Tax Adviser is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.


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