Jean on his decease left proceeds of an insurance policy and non-registered investments (which had been acquired by him out of accumulated savings) under a trust (“Trust”) for the exclusive benefit of his surviving spouse (“Jeanne,” also a Canadian resident), and with two of their children as trustees. Is the income generated by Trust and distributed to Jeanne subject to the tax on split income?
After assuming that Trust's investment income consists of taxable dividends on shares listed on a designated stock exchange ("Dividends"), taxable capital gains from the disposition of such shares ("Capital Gains") and interest on debt obligations ("Interest"), CRA (before going on to address the Interest) found that the distributed Dividends were not split income by virtue of the ss. (a)(i) and (c)(ii)(A) exclusions in the “split income” definition, and that
the amount representing the portion of the Distribution that relates to the Capital Gains would not be split income for Jeanne by virtue of the exception provided in clause (e)(ii)(A) of the definition of "split income" in subsection 120.4(1).