Estate and trust

Apologies if this has come up in this forum already - I did try to search here but didn't come up with anything.  Client has Opco owned by Family Trust, and Holdco as beneficiary of Trust.  Client wants to bring Trust in as SH of the Holdco beneficiary as well, which would create circularity between Trust and Holdco.  I have seen such circularity before when I worked for a large firm but it has been a long time since, and CRA is paying alot more attention to trusts these days.  The only commentary I found in CTF on the circularity issue was by Ian Worland in his 2010 BCTC article "Constant and Current Issues in the Taxation of Domestic Trusts" p. 33 and 34 where he basically says that CRA commented that such a situation could create 75(2) risk, but that CRA subsequently backed away from that warning and said 75(2) should not apply.  Has anyone encountered or become aware of any concerns at all about that kind of circularity?  If so would you mind providing some details?

The s.75(2) concern stems from income that could be paid from the corporate beneficiary to the trust and allocated by the trust to said beneficiary. You could tailor your trust deed accordingly to ring fence the exposure.

Volume 22, TOM, Numero 2, April 2022 has a great paper from John Loukidelis that really takes a deep dive on this issue.

Attachment(s)

Trust Owns Corp and Corp is Beneficiary of Trust.pdf   216 KB 1 version