Income Tax Act

Marginal note:Income interest in trust

• 106 (1) Where an amount in respect of a taxpayer’s income interest in a trust has been included in computing the taxpayer’s income for a taxation year by reason of subsection 106(2) or 104(13), except to the extent that an amount in respect of that income interest has been deducted in computing the taxpayer’s taxable income pursuant to subsection 112(1) or 138(6), there may be deducted in computing the taxpayer’s income for the year the lesser of

  • (a) the amount so included in computing the taxpayer’s income for the year, and

  • (b) the amount, if any, by which the cost to the taxpayer of the income interest exceeds the total of all amounts in respect of the interest that were deductible under this subsection in computing the taxpayer’s income for previous taxation years.

• Marginal note:Cost of income interest in a trust

  (1.1) The cost to a taxpayer of an income interest of the taxpayer in a trust is deemed to be nil unless

  • (a) any part of the interest was acquired by the taxpayer from a person who was the beneficiary in respect of the interest immediately before that acquisition; or

  • (b) the cost of any part of the interest would otherwise be determined not to be nil under paragraph 128.1(1)(c) or (4)(c).

• Marginal note:Disposition by taxpayer of income interest

  (2) Where in a taxation year a taxpayer disposes of an income interest in a trust,

  • (a) except where subsection (3) applies to the disposition, there shall be included in computing the taxpayer’s income for the year the amount, if any, by which

    • (i) the proceeds of disposition

    exceed

    • (ii) where that interest includes a right to enforce payment of an amount by the trust, the amount in respect of that right that has been included in computing the taxpayer’s income for a taxation year because of subsection 104(13);

  • (b) any taxable capital gain or allowable capital loss of the taxpayer from the disposition shall be deemed to be nil; and

  • (c) for greater certainty, the cost to the taxpayer of each property received by the taxpayer as consideration for the disposition is the fair market value of the property at the time of the disposition.

• Marginal note:Proceeds of disposition of income interest

  (3) For greater certainty, where at any time any property of a trust has been distributed by the trust to a taxpayer who was a beneficiary under the trust in satisfaction of all or any part of the taxpayer’s income interest in the trust, the trust shall be deemed to have disposed of the property for proceeds of disposition equal to the fair market value of the property at that time.