CRA indicates that interest on a mortgage assumed by a beneficiary on a trust or estate distribution of a rental property generally will be deductible

Where an inter vivos trust (or estate) distributes a rental property charged with a mortgage (or hypothec in Quebec) to a beneficiary (A), CRA considers that the mortgage will represent an amount payable by the beneficiary for the property (so that the interest thereon will be deductible under s. 20(1)(c)((ii), subject to the usual conditions) provided "the assumption by A of the hypothec loan charging the property is a condition of the distribution."

This begs the question as to what happens if the beneficiary doesn’t do anything in particular to assume the mortgage, e.g., the mortgage continues as a charge on registered title held by a nominee. Furthermore, at common law, a devisee of real property of an estate takes the property subject to the charge without any requirement for the devisee to specifically assume the mortgage, in the absence of any contrary indication in the will.

Neal Armstrong. Summary of 10 October 2014 APFF Roundtable, Q. 8, 2014-0538141C6 F under s. 20(1)(c)(ii).