An inter vivos Canadian resident trust pays an amount equal to its net taxable capital gains for the year to a Canadian private corporation that is a beneficiary and designates that amount pursuant to s. 104(21). CRA indicated that a valid s. 104(21) designation would result in that amount being deemed to be a taxable capital gain realized by the corporation even though the non-taxable half of the gains was distributed instead to other beneficiaries. However, by virtue of the wording of s. (a)(i.1) of the capital dividend account definition, there would be no addition to the corporation’s CDA – whereas there would be such an addition if both portions of the capital gains were distributed to the corporate beneficiary.
The addition to the corporation’s CDA would be considered to occur at the end of the taxation year of the trust in which the trust made the distribution to the corporation, given that the s. 104(21) designation cannot be made before the end of the trust’s taxation year.