All About Estates

Designation of a Taxable Capital Gain for a Trust Beneficiary

The Canada Revenue Agency (CRA) was asked to consider a situation where a testamentary trust (the trust) disposed of qualified small business corporation shares (QSBCS) in 2013 during its taxation year ending on January 31, 2014. The trust allocated the taxable capital gain to its beneficiary.

The CRA was asked to confirm when the net taxable capital gain would be considered a taxable capital gain a taxable capital gain resulting from the disposition of QSBCS for the beneficiary’s 2014 taxation year.

The CRA confirmed that the beneficiary could claim a capital gains for his 2014 taxation year. The maximum deduction claimable would be $800,000 on a pre-tax basis, and $400,000 on an after-tax basis. The taxable capital gain allocated by the trust to the beneficiary was deemed earned from the disposition of the QSBCS by the beneficiary for his 2014 taxation year. The tax rule provides that an amount in respect of the net taxable capital gains of a trust for a taxation year is deemed to be a taxable capital gain for the beneficiary’s taxation year during which the trust’s taxation year ends.

There may be an opportunity for the beneficiaries of new trusts and estates to avail themselves of additional capital gain exemption room by choosing a 2014 year end date. Be sure to speak with a pro.

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com