CRA generally accepts that loss of a s. 107(2) rollover can be avoided, where a trust owes debt to a capital beneficiary, by refinancing the debt with a bank

CRA considers (e.g., 2013-0488061E5) that the s. 107(2) rollover does not apply to the property of a personal trust which is distributed to a capital beneficiary to pay a debt owing to the beneficiary. In order to avoid this result in the case of a real property subject to a mortgage owing to the capital beneficiary, the trust can pay off the mortgage with a fresh mortgage financing from a bank, and then distribute the encumbered property to the beneficiary.

Neal Armstrong. Summary and translation of 2015-0593091C6 F under 9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 8.