2 June 2026 STEP Roundtable Q. 8, 2026-1089221C6 - Acquisition of Control of Corporate

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Acquisition of control and change of trustee(s).

Position: See response below.

Reasons: Previous positions, in particular 2022-0928191C6.

2026 STEP CRA Roundtable – June 2, 2026

Question 8. Acquisition of Control of Corporation

The use of alter ego and joint partner trusts as will substitutes is becoming more common in Canada. Such trusts often simplify personal estate planning as they cover both incapacity and death. Often the settlor will be a trustee until such time as they become incapable or die, when they will be replaced by others. After the settlor’s incapacity or death, the trustee(s) will change and may in the future continue to change from time to time in accordance with the trust terms.

If the assets of the alter ego or joint partner trust include controlling shares of a corporation, can the CRA comment on whether there will be an acquisition of control or loss restriction event for the corporation as a result of the replacement of the trustee by:

a) a person related to the settlor?

b) a person unrelated to the settlor?

c) an independent trust company?

CRA Response:

Pursuant to subsection 248(1), the term “alter ego trust” refers to a trust to which paragraph 104(4)(a) applies, if read without reference to subparagraph 104(4)(a)(iii) and clauses 104(4)(a)(iv)(B) and (C). Furthermore, the term “joint spousal or common-law partner trust” (“joint partner trust”) means a trust to which paragraph 104(4)(a) would apply if that paragraph were read without reference to subparagraph 104(4)(a)(iii) and clause 104(4)(a)(iv)(A).

To qualify as an alter ego trust, a trust, among others, must be created by a taxpayer (the “settlor”) who is 65 years of age or older, for the settlor’s own benefit during his or her lifetime and, under the terms of the trust deed, the settlor is entitled to receive all of the income of the trust that arises before the taxpayer’s death. In addition, no person except the settlor could, before the settlor’s death, receive or otherwise obtain the use of any of the income or capital of the trust.(footnote 1)

Similarly, in the case of a joint partner trust, the terms of the trust deed must provide that the settlor or the settlor’s spouse or common-law partner (the “settlor’s partner”) is, in combination with the settlor’s partner or the settlor, as the case may be, entitled to receive all of the income of the trust that arises before the later of the death of the settlor and the death of the settlor’s partner. In addition, no other person could, before the later of those deaths receive or otherwise obtain the use of any of the income or capital of the trust.(footnote 2)

Paragraph 256(7)(i) applies in circumstances in which a trust, at a particular time after September 12, 2013, controls a particular corporation and the trustee or other legal representative (the trustee) having ownership or control of the trust property (i.e., including shares of the capital stock of the particular corporation held by the trust) changes.

Paragraph 256(7)(i) deems control of the particular corporation not to be acquired solely because of the change, provided that two additional conditions are met. First, subparagraph 256(7)(i)(i) requires that the change in trustees is not part of a series of transactions or events that includes a change in the beneficial ownership of the trust’s property. Second, subparagraph 256(7)(i)(ii) requires that no amount of income or capital of the trust to be distributed, at any time at or after the change, in respect of any interest in the trust depends upon the exercise by any person or partnership, or the failure of any person or partnership, to exercise any discretionary power.

The question of whether the trustees of an alter ego trust or a joint partner trust have a discretionary power with respect to income or capital distributions is a question of fact that requires an analysis of the terms of the trust deed. However, the CRA is generally of the view that the trustees of such trust who hold a power to encroach on capital thereby hold discretionary authority with respect to the capital of the trust. Consequently, depending on the circumstances and the terms of the trust deed, the condition may not be satisfied where an alter ego trust or a joint partner trust is involved, with the result that paragraph 256(7)(i) would not apply to deem that no acquisition of control of the corporation has occurred. This could be the case where the trustees of such trust hold a power to encroach on income or capital. The fact that the replacement trustee is related or not to the settlor is not relevant in such case.

Where paragraph 256(7)(i) does not apply, the CRA’s longstanding position(footnote 3) would continue to apply. Specifically, where the majority of the voting shares of a corporation are held by a trust, it is the trustees of the trust who have the legal ownership of the shares, who have the right to vote those shares, and who, therefore, control the corporation. Where a trust has multiple trustees, the determination as to which trustee or group of trustees controls the corporation can only be made after a review of all the pertinent facts, including the terms of the trust document. However, in the absence of evidence to the contrary, we would consider there to be a presumption that all of the trustees would constitute a group that controls the corporation.

Consequently, we would generally take the position there would be an acquisition of control in the situations described in b) and c) above. With respect to a) above, paragraph 256(7)(a) may apply, where shares are acquired by a person related to the former trustee, to deem that there be no acquisition of control.

Olivier Bergeron
2026-108922

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. Clause 104(4)(a)(iv)(A)

2. Clauses 104(4)(a)(iv)(B) and (C).

3. STEP 2022 – Q 6 - Acquisition of control and change of trustee(s).