CRA provides an example of the flow-through of the s. 120.4(1.1)(c) excluded amount exclusion through a trust
CRA provided an example of the application of the s. 120.4(1.1)(c)(ii) excluded share exception (re an amount received by a specified individual if it would have been an excluded amount to a spouse or common-law partner of that individual had it been included in the spouse/partner’s income for their last taxation year before death).
A, the deceased spouse of the specified individual, owned excluded shares of Canco (carrying on a related business) throughout A’s last taxation year before A’s death. The specified individual is a beneficiary of a Canadian-resident trust, which acquired Canco shares during A’s lifetime. The trust now receives a dividend from Canco and distributes it to the specified individual. The exclusion in s. 120.4(1.1)(c)(ii) will apply if the dividend would have been an excluded amount of A had it been included in computing A’s income for A’s last taxation year before death.
CRA considered that, given that A owned the Canco shares throughout A’s last taxation year before death and they satisfied the requirements for excluded share status during that period, the dividend should be deemed to be an excluded amount in respect of the specified individual under s. 120.4(1.1)(c)(ii).
CRA also indicated that a similar analysis would apply in respect of the application of s. 120.4(1.1)(c)(i), where the spouse or common-law partner was 65 years or older in the year.