Can the trustee allocate the taxable portion of a capital gain to an income beneficiary and the non-taxable portion of the capital gain to a capital beneficiary? CRA responded:
Absent a provision to the contrary in the trust indenture, capital gains realized by a trust are generally not part of "income" for civil law purposes. With respect to a provision to the contrary to the trust indenture, the CRA and jurisprudence do not recognize clauses that give the trustees of a trust complete discretion in determining what constitutes capital or income. However, specific clauses that clearly provide that certain types of payments will constitute income to the trust are acceptable.
Thus, if such a specific clause legally allows for the taxable capital gain to be paid to an income beneficiary and the non-taxable portion of the capital gain to be paid to a capital beneficiary, the trustee could make the allocation described herein.