The QSBC character of capital gains can be flowed out through a 2 levels of personal trusts

2019-0818301I7 F (an August 13, 2020 internal technical interpretation) reversed 2016-0667361E5 and found that (with the proper designations at both levels under ss. 104(21) and (21.2),) taxable capital gains realized by a lower-tier personal trust from the disposition of qualified small business corporation (QSBC) shares could retain their character as such when distributed to personal trusts that were its beneficiaries which, in turn and in the same year, distributed those gains to their individual beneficiaries. Thus, such individuals could access the capital gains deduction.

The Rulings Directorate has now published an external technical interpretation repeating the same analysis, without any notable changes.

Neal Armstrong. Summary of 2 September 2020 External T.I. 2018-0738271E5 F under s. 104(21.2).