CRA indicates that the s. 112(3.2) stop-loss rule does not apply where an estate s.84(3) dividend is indirectly designated to an individual through a spousal trust
The will of the deceased created an estate under which amounts are to be paid to a spousal trust. That trust may, in turn, pay amounts to beneficiaries. The graduated rate estate ("GRE") is deemed to receive a taxable dividend on the redemption of shares. If this taxable dividend is designated to an individual, then the s. 112(3.2)(b) stop-loss rule would not apply. However, if the GRE designates the amount to the spousal trust, which then designates the amount to a beneficiary who is an individual, would s. 112(3.2)(b) apply to reduce the capital loss?
CRA indicated that the exclusion in s. 112(3.32) from the application of s. 112(3.2)(b) should apply where an estate has received an s. 84(3) deemed dividend on a redemption, it designates that dividend, distributes it to the spousal trust, and the spousal trust in turn designates and pays it to the individual beneficiary – so that the taxable dividend does not reduce the loss.