CRA treated a distribution to a partnership comprised of named trust beneficiaries (as permitted by the trust deed) as not being made to trust beneficiaries
The CRA position (e.g., in 2014-0538261C6) that if a personal-trust beneficiary is instead issued a promissory note by the personal trust in satisfaction of her capital interest in the trust, the s. 107(2) rollover is unavailable, may not sit well with the proposition that the note issuance entails a transfer of property to the beneficiary.
An apparent position in 2014-0538141C6 that interest, on a hypothec charging a property distributed to a beneficiary, is deductible provided that the assumption of the hypothec “is a condition, of the distribution" should not be applicable in the common law provinces (or at all) given that, at common law, a devisee of real property of an estate takes the property subject to the charge without any requirement that the devisee specifically assume the mortgage, in the absence of any contrary indication in a will.
Where a non-resident personal trust wishes to distribute property (other than taxable Canadian property) to a resident beneficiary, the beneficiary can make a s. 107(2.002) election so that the property does not roll out under s. 107(2) and is instead acquired by the beneficiary at full cost. However, as the beneficiary may therefore realize a gain on the deemed disposition of her capital interest in the trust, it may be more efficient, subject to applicable foreign tax considerations, for the non-resident trust to effect an actual disposition of the property before the distribution.
CRA, in responding to a request for a technical interpretation, declined to confirm that the s. 107(2) rollover was available where property was distributed by a Canadian-resident personal trust to a newly formed partnership, all of whose partners were (non-resident) individual beneficiaries under the trust, unless the deed of settlement of the trust was amended or varied to include the partnership as a named beneficiary. This position appears to be contrary to the meaning of a "beneficiary" in general trust law, which includes any person or partnership that may receive a distribution of property under the trust (whether or not specifically named).
Neal Armstrong. Summaries of Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Beneficiaries Resident in Canada", Chapter 4 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016 including under s. 107(2), s. 20(1)(c)(ii) and s. 107(2.002).