Section 107(2) trust distribution rollover

A family trust may hold shares of a private company and later distribute them to its beneficiaries, for instance as part of a reorganization. Subsection 107(2) is the provision that can apply to that distribution, if its conditions are met and no exception applies. Treat it as a label for a detailed provision, not a guarantee of any result.

How the subsection works

• It applies where property of a personal trust or prescribed trust is distributed (otherwise than as a SIFT trust wind-up event) to a taxpayer who was a beneficiary and there is a resulting disposition of all or part of the taxpayer’s capital interest in the trust.
• Paragraph 107(2)(a) deems the trust to have disposed of the property for proceeds equal to its cost amount to the trust immediately before that time.
• It is subject to subsections 107(2.001), 107(2.002) and 107(4) to (5); in the cases in subsections (4) to (5), subsection 107(2.1) applies and subsection (2) does not.

What to ask

Ask whether the trust is a personal trust, which subsection applies, and what was reported to the CRA. The CRA’s T3 trust guide asks for a statement about distributed property other than cash when a personal trust distributes it to settle a beneficiary’s capital interest. See also how a discretionary family trust is used in business succession and family trust.