CRA finds that s. 75(2) does not apply to the deemed s. 104(4) capital gain arising in an alter ego trust on the life beneficiary’s death

CRA expanded on the discussion in 2017-0717831E5 by also discussing the treatment of a capital gain arising from the deemed disposition by an alter ego trust of capital property pursuant to s. 104(4) on the death of the beneficiary. CRA indicated that essentially s. 104(6) prevents a deduction to the trust for that taxable capital gain, so that it remains in the trust. Furthermore, if s. 75(2) applies, it does not attribute the gain to the beneficiary because the deemed disposition resulting from the beneficiary’s occurs at the end of that day, at which point there is not longer an individual in existence to whom the taxable capital gain can be attributed.

Neal Armstrong. Summaries of 29 May 2018 STEP Roundtable, Q.11 under s. 104(6)(b) – B – (i).