The surviving spouse beneficiary of a spousal trust died in 2017. All of the conditions in s. 104(13.4)(b.1) for making the joint s. 104(13.4)(b) were met. Could the election be made respecting only a portion of the capital gains deemed to be realized on the death of the surviving spouse respecting the trust’s portfolio of marketable securities, so that only this amount would be deemed to have been payable in the year and included in the final return of the surviving spouse (where it would be subject to graduated rates), while the remaining portion of the deemed capital gains would be retained at the trust level in order to use up trust capital loss carryforwards?
CRA responded negatively:
[A]ny income arising from the application of the deemed disposition rules in subsections 104(4) to 104(5.2), on the death of the relevant beneficiary, would be subject to taxation in the trust unless a [valid] joint election … [is] filed in accordance with paragraph 104(13.4)(b.1). [The] Technical Notes … [state], “Paragraph 104(13.4)(b) deems the trust's income for the particular year to have become payable to the particular beneficiary in the particular year, with the result that all of the trust's income for the particular year is required by subsection 104(13) to be included in computing the particular beneficiary's income for the beneficiary's taxation year (i.e., the beneficiary's final taxation year) in which the particular year ends.” [Emphasis added]. It is our view that where a joint election is made, paragraph 104(13.4)(b) would be applicable in respect of all of the income of the trust.
Nonetheless, an amount may be designated by the trust under subsections 104(13.1) or (13.2), subject to the limitations outlined in those provisions and in subsection 104(13.3), in respect of amounts deemed to have become payable to the deceased beneficiary in the year.