For taxation years ending after 2015, where the lifetime beneficiary of an alter ego trust dies, the trust will have a deemed year end on the beneficiary's day of death under s. 104(13.4). Where the trust realizes a capital gain arising from the deemed disposition of capital property pursuant to s. 104(4) on the death of the beneficiary, can the capital gain be reported on the beneficiary's final T1 Return?
After expanding on its position in 2017-0717831E5 respecting the treatment of distributed dividend income of the trust (also noting that if s. 104(13) did not apply, s. 75(2) would apply), CRA indicated that essentially, the trust has a deemed disposition giving rise to a taxable capital gain, but s. 104(6) prevents a deduction to the trust for that taxable capital gain, so that it remains in the trust.