CRA considers that there’s no rollover to the extent that a trust property distribution satisfies debt owing to the beneficiary

CRA interprets the preamble to s. 107(2) as establishing that there is a rollover under s. 107(2)(a) only for that portion of the property distributed by a personal trust to a beneficiary which satisfies the beneficiary’s capital interest in the trust.  Accordingly, if a personal trust distributes an appreciated parcel of real estate to a capital beneficiary, and 10% of the property repays debt owing by the trust to the beneficiary, with only the balance of 90% satisfying the beneficiary’s capital interest, the trust will realize a capital gain on the distribution of the 10% portion.

Neal Armstrong.  Summary of 2 July 2013 T.I. 2013-0488061E5 under s. 107(2).