CRA states that recovery tax applies to undistributed income in a QDT at the time of the disabled beneficiary’s death

CRA confirmed that where the disabled beneficiary of a qualified disability trust dies during a year, this will result (in addition presumably to the QDT not qualifying as such in the year of death) in the imposition of “recovery” tax, based on the top marginal rate, on any undistributed income from previous years still in the hands of the trust at the time of the beneficiary’s death. S. 159(3) could apply if the trustee of the former QDT distributed trust property to the estate of the deceased without the recovery tax being paid.

Neal Armstrong. Summaries of 7 October 2016 APFF Financial Strategies and Instruments Roundtable, Q.7 under s. 122(2)(c) and s. 159(2).