Principal Issues: A trust wants to make a section 48.1 election to crystallize a capital gain: 1) if the trustee’s power to encroach on capital is general, and the trustee exercises their discretion pursuant to the general power to make a payment to the beneficiaries before the end of the trust's year of an amount equal to the deemed capital gain, would the deemed capital gain be considered payable under subsection 104(24) of the Act? 2) if the answer to question 1 is yes, is there any reason why it cannot be paid in the form of shares that were the subject of the section 48.1 election?
Position: 1) It depends on the terms of the trust indenture but a general power to encroach on the capital is not sufficient. 2) It depends on the terms of the trust indenture.
Reasons: 1) The terms of the trust must specifically give the trustees the discretion to pay out or make payable an amount equivalent to a deemed capital gain, or the discretion to pay out or make payable an amount that is defined as income under the Act. 2) Where the trust makes the payment in kind, the trust must specify that such payment is in respect of the deemed taxable capital gain and not in satisfaction of a beneficiary's capital interest in the trust.
