Blog » Avoiding s. 256 Association Rules
October 3rd 2023
The 25% cross ownership requirement of s. 256 refers to beneficial ownership; with control of a Corporation residing in a Trustee, ownership of shares can reside with the trust beneficiaries. The application of s. 256 (1) (c),(d) & (e) is avoided (at the Trust level) through the non application of the 25% cross ownership rules. This permits the Trust to be related to a person that controls another Corporation but does not result in the Corporations being associated. The utilization of unrelated Trustee’s can avoid the application of the 256 (1) (a) & (b) control test. The above leads to the conclusion that the deemed ownership rules of 256 (1.2) (f) (ii)/(iii) will have to apply before companies are associated, raising the complex issue of who a beneficiary of a trust is for purposes of these sections. The language of 248 (25) makes it clear that the scope of “beneficiary” is narrower than that of being “beneficially interested” in a trust (ie by way of 248 (25) where there are circumstances where a person is not a beneficiary but would be considered as being beneficially interested). It follows that a 248 (25)(ii) type interest in a trust would not be caught by 256 (1.2)(f), this statutory scheme is consistent with the traditional definition of beneficiary as being someone with right to apply to the court to enforce the terms of a trust. A 245 (25) (ii) type interest would for example include an interest belonging to a class of persons anyone of which could be appointed by someone holding a (non fiduciary) power of appointment (ie not held by Trustee) as a beneficiary.
The Propec case should be considered although the facts there involved successive interests in a Trust and wherein the definition of beneficially interested was read into s. 256 (1.2) (f).
DISCLAIMER: This document is written for general information only. It is not intended as legal advice or opinion.
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