CRA finds that the s. 110.6(31) limitation on LCGE claims applied to capital gains reserves distributed by a personal trust

S. 110.6(31) provides that where a previously-claimed capital gains reserve is recognized as a capital gain in a subsequent year under s. 40(1)(a)(ii), the total lifetime capital gains exemption (LCGE) claim of the taxpayer in the subsequent year cannot reflect the benefit of any increases (e.g., from indexing for inflation ) in the quantum of the exemption from the year of the original disposition.

CRA has found that the s. 110.6(31) limitation applies as well where a personal trust realized the capital gain (e.g., from qualified small business corporation shares), claimed the reserve, and then distributed the reserve amount to a beneficiary in the subsequent year utilizing ss. 104(21) and (21.1) designations.

Neal Armstrong. Summary of 3 August 2018 Internal T.I. 2018-0755351I7 under s. 110.6(31) and s. 104(21.2).