Principal Issues: For taxation years ending after 2015, in the year that the primary beneficiary of an alter ego trust dies, can the trust claim a deduction in respect of the income earned by the trust and which became payable to that beneficiary prior to their death?
Position: A deduction may be claimed in respect of amounts which became payable to the primary beneficiary prior to their death; however, no deduction is available in respect of capital gains and other amounts recognized by the trust upon the death of the beneficiary pursuant to subsections 104(4) to 104(5.2) (the “deemed disposition rules”) and subsection 12(10.2).
Reasons: Element B of the formula in paragraph 104(6)(b).