CRA indicates that income that is paid to a minor beneficiary in contravention of the trust deed is non-deductible under s. 104(6)

A family trust paid income to the minor children in breach of a prohibition in the trust deed against making distributions to designated persons. Obviously, the trust was still entitled to a s. 104(6) deduction given that s. 104(24) deems an amount to be payable to a beneficiary for s. 104(6) deduction purposes if it was paid to the beneficiary.

Wrong - at least according to CRA, who view s. 104(24) more as a timing rule, so that if the amount cannot be legally payable, actually paying it will not bring it within the s. 104(6) rule. Accordingly, there was no s. 104(6) deduction to the trust, and CRA considered the distributions to be includible in the children’s income under s. 105(1) rather than s. 104(13).

Neal Armstrong. Summaries of 1 November 2016 Internal T.I. 2016-0663971I7 under s. 104(24), s. 105(1) and General Concepts - Illegality.