CRA considers that the residue of the Estate can include income and that such income generally can be made payable to a residual beneficiary, so that such income can be deducted by the estate under s. 104(6).
However, depending on the wording of the Will, after the debts and specific bequests of the estate have been paid, the Executor may be required to pay the taxes owing on the income generated by the Estate and distribute the after tax “residue” to the residual beneficiaries. In such cases distributions to residual beneficiaries could not be considered to be income payable to a beneficiary for purposes of subsections 104(6) and 104(13).
In such a case, instead of the deduction, “the income would be taxed in the estate, and the residual beneficiaries would receive capital distributions, comprised of after tax paid capital of the estate.”