Income Tax Act

Marginal note:Disposition by taxpayer of capital interest

• 107 (1) Where a taxpayer has disposed of all or any part of the taxpayer’s capital interest in a trust,

  • (a) where the trust is a personal trust or a prescribed trust, for the purpose of computing the taxpayer’s capital gain, if any, from the disposition, the adjusted cost base to the taxpayer of the interest or the part of the interest, as the case may be, immediately before the disposition is, unless any part of the interest has ever been acquired for consideration and, at the time of the disposition, the trust is non-resident, deemed to be the greater of

    • (i) its adjusted cost base, otherwise determined, to the taxpayer immediately before the disposition, and

    • (ii) the amount, if any, by which

      • (A) its cost amount to the taxpayer immediately before the disposition

      exceeds

      • (B) the total of all amounts deducted under paragraph 53(2)(g.1) in computing its adjusted cost base to the taxpayer immediately before the disposition;

  • (b) [Repealed, 2001, c. 17, s. 80(2)]

  • (c) where the taxpayer is not a mutual fund trust, the taxpayer’s loss from the disposition is deemed to be the amount, if any, by which the amount of that loss otherwise determined exceeds the amount, if any, by which

    • (i) the total of all amounts each of which was received or would, but for subsection 104(19), have been received by the trust on a share of the capital stock of a corporation before the disposition (and, where the trust is a unit trust, after 1987) and

      • (A) where the taxpayer is a corporation,

        • (I) was a taxable dividend designated under subsection 104(19) by the trust in respect of the taxpayer, to the extent of the amount of the dividend that was deductible under section 112 or subsection 115(1) or 138(6) in computing the taxpayer’s taxable income or taxable income earned in Canada for any taxation year, or

        • (II) was an amount designated under subsection 104(20) by the trust in respect of the taxpayer,

      • (B) where the taxpayer is another trust, was an amount designated under subsection 104(19) or 104(20) by the trust in respect of the taxpayer, and

      • (C) where the taxpayer is not a corporation, trust or partnership, was an amount designated under subsection 104(20) by the trust in respect of the taxpayer

    exceeds

    • (ii) the portion of the total determined under subparagraph 107(1)(c)(i) that can reasonably be considered to have resulted in a reduction, under this paragraph, of the taxpayer’s loss otherwise determined from a previous disposition of an interest in the trust;

  • (d) where the taxpayer is a partnership, the share of a person (other than another partnership or a mutual fund trust) of any loss of the partnership from the disposition is deemed to be the amount, if any, by which that loss otherwise determined exceeds the amount, if any, by which

    • (i) the total of all amounts each of which is a dividend that was received or would, but for subsection 104(19), have been received by the trust on a share of the capital stock of a corporation before the disposition (and, where the trust is a unit trust, after 1987) and

      • (A) where the person is a corporation,

        • (I) was a taxable dividend that was designated under subsection 104(19) by the trust in respect of the taxpayer, to the extent of the amount of the dividend that was deductible under section 112 or subsection 115(1) or 138(6) in computing the person’s taxable income or taxable income earned in Canada for any taxation year, or

        • (II) was a dividend designated under subsection 104(20) by the trust in respect of the taxpayer and was an amount received by the person,

      • (B) where the person is an individual other than a trust, was a dividend designated under subsection 104(20) by the trust in respect of the taxpayer and was an amount received by the person, and

      • (C) where the person is another trust, was a dividend designated under subsection 104(19) or 104(20) by the trust in respect of the taxpayer and was an amount received by the person (or that would have been received by the person if this Act were read without reference to subsection 104(19)),

      exceeds

    • (ii) the portion of the total determined under subparagraph 107(1)(d)(i) that can reasonably be considered to have resulted in a reduction, under this paragraph, of the person’s loss otherwise determined from a previous disposition of an interest in the trust; and

  • (e) if the capital interest is not a capital property of the taxpayer, notwithstanding the definition cost amount in subsection 108(1), its cost amount is deemed to be the amount, if any, by which

    • (i) the amount that would, if this Act were read without reference to this paragraph and the definition cost amount in subsection 108(1), be its cost amount

    exceeds

    • (ii) the total of all amounts, each of which is an amount in respect of the capital interest that has become payable to the taxpayer before the disposition and that would be described in subparagraph 53(2)(h)(i.1) if that subparagraph were read without reference to its subclause (B)(I).

• Marginal note:Cost of capital interest in a trust

  (1.1) The cost to a taxpayer of a capital interest of the taxpayer in a personal trust or a prescribed trust is deemed to be,

  • (a) where the taxpayer elected under subsection 110.6(19) in respect of the interest and the trust does not elect under that subsection in respect of any property of the trust, the taxpayer’s cost of the interest determined under paragraph 110.6(19)(a); and

  • (b) in any other case, nil, unless

    • (i) 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

    • (ii) the cost of any part of the interest would otherwise be determined not to be nil under section 48 as it read in its application before 1993 or under paragraph 111(4)(e) or 128.1(1)(c) or (4)(c).

• Marginal note:Deemed fair market value — non-capital property

  (1.2) For the purpose of section 10, the fair market value at any time of a capital interest in a trust is deemed to be equal to the amount that is the total of

  • (a) the amount that would, if this Act were read without reference to this subsection, be its fair market value at that time, and

  • (b) the total of all amounts, each of which is an amount that would be described, in respect of the capital interest, in subparagraph 53(2)(h)(i.1) if that subparagraph were read without reference to its subclause (B)(I), that has become payable to the taxpayer before that time.

• Marginal note:Distribution by personal trust

  (2) Subject to subsections (2.001), (2.002) and (4) to (5), if at any time a property of a personal trust or a prescribed trust is distributed (otherwise than as a SIFT trust wind-up event) by the trust to a taxpayer who was a beneficiary under the trust and there is a resulting disposition of all or any part of the taxpayer’s capital interest in the trust,

  • (a) the trust shall be deemed to have disposed of the property for proceeds of disposition equal to its cost amount to the trust immediately before that time;

  • (b) subject to subsection (2.2), the taxpayer is deemed to have acquired the property at a cost equal to the total of its cost amount to the trust immediately before that time and the specified percentage of the amount, if any, by which

    • (i) the adjusted cost base to the taxpayer of the capital interest or part of it, as the case may be, immediately before that time (determined without reference to paragraph (1)(a))

    exceeds

    • (ii) the cost amount to the taxpayer of the capital interest or part of it, as the case may be, immediately before that time;

  • (b.1) for the purpose of paragraph (b), the specified percentage is,

    • (i) where the property is capital property (other than depreciable property), 100%,

    • (ii) where the property is eligible capital property in respect of a business of the trust, 100%, and

    • (iii) in any other case, 50%;

  • (c) the taxpayer’s proceeds of disposition of the capital interest in the trust (or of the part of it) disposed of by the taxpayer on the distribution are deemed to be equal to the amount, if any, by which

    • (i) the cost at which the taxpayer would be deemed by paragraph (b) to have acquired the property if the specified percentage referred to in that paragraph were 100%

    exceeds

    • (ii) the total of all amounts each of which is an eligible offset at that time of the taxpayer in respect of the capital interest or the part of it;

  • (d) where the property so distributed was depreciable property of a prescribed class of the trust and the amount that was the capital cost to the trust of that property exceeds the cost at which the taxpayer is deemed by this section to have acquired the property, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a)

    • (i) the capital cost to the taxpayer of the property shall be deemed to be the amount that was the capital cost of the property to the trust, and

    • (ii) the excess shall be deemed to have been allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition by the taxpayer of the property;

  • (d.1) [Repealed, 2010, c. 12, s. 10]

  • (e) [Repealed, 1994, c. 7, Sch. VIII, s. 43(1)]

  • (f) where the property so distributed was eligible capital property of the trust in respect of a business of the trust,

    • (i) where the eligible capital expenditure of the trust in respect of the property exceeds the cost at which the taxpayer is deemed by this subsection to have acquired the property, for the purposes of sections 14, 20 and 24,

      • (A) the eligible capital expenditure of the taxpayer in respect of the property shall be deemed to be the amount that was the eligible capital expenditure of the trust in respect of the property, and

      • (B) 3/4 of the excess shall be deemed to have been allowed under paragraph 20(1)(b) to the taxpayer in respect of the property in computing income for taxation years ending

        • (I) before the acquisition by the taxpayer of the property, and

        • (II) after the adjustment time of the taxpayer in respect of the business, and

    • (ii) for the purpose of determining after that time the amount required by paragraph 14(1)(b) to be included in computing the taxpayer’s income in respect of any subsequent disposition of property of the business, there shall be added to the value otherwise determined for Q in the definition cumulative eligible capital in subsection 14(5) the amount determined by the formula

      A × B/C

      where

      A

      is the amount, if any, determined for Q in that definition in respect of the business of the trust immediately before the distribution,

      B

      is the fair market value of the property so distributed immediately before the distribution, and

      C

      is the fair market value immediately before the distribution of all eligible capital property of the trust in respect of the business.

• Marginal note:No rollover on election by a trust

  (2.001) Where a trust makes a distribution of a property to a beneficiary of the trust in full or partial satisfaction of the beneficiary’s capital interest in the trust and so elects in prescribed form filed with the Minister with the trust’s return of income for its taxation year in which the distribution occurred, subsection (2) does not apply to the distribution if

  • (a) the trust is resident in Canada at the time of the distribution;

  • (b) the property is taxable Canadian property; or

  • (c) the property is capital property used in, eligible capital property in respect of, or property described in the inventory of, a business carried on by the trust through a permanent establishment (as defined by regulation) in Canada immediately before the time of the distribution.

• Marginal note:No rollover on election by a beneficiary

  (2.002) Where a non-resident trust makes a distribution of a property (other than a property described in paragraph (2.001)(b) or (c)) to a beneficiary of the trust in full or partial satisfaction of the beneficiary’s capital interest in the trust and the beneficiary makes an election under this subsection in prescribed form filed with the Minister with the beneficiary’s return of income for the beneficiary’s taxation year in which the distribution occurred,

  • (a) subsection (2) does not apply to the distribution; and

  • (b) for the purpose of subparagraph (1)(a)(ii), the cost amount of the interest to the beneficiary is deemed to be nil.

• Marginal note:Distribution of principal residence

  (2.01) Where property that would, if a personal trust had designated the property under paragraph (c.1) of the definition principal residence in section 54, be a principal residence (within the meaning of that definition) of the trust for a taxation year, is at any time (in this subsection referred to as “that time”) distributed by the trust to a taxpayer in circumstances in which subsection (2) applies and the trust so elects in its return of income for the taxation year that includes that time,

  • (a) the trust shall be deemed to have disposed of the property immediately before the particular time that is immediately before that time for proceeds of disposition equal to the fair market value of the property at that time; and

  • (b) the trust shall be deemed to have reacquired the property at the particular time at a cost equal to that fair market value.

• Marginal note:Other distributions

  (2.1) Where at any time a property of a trust is distributed by the trust to a beneficiary under the trust, there would, if this Act were read without reference to paragraphs (h) and (i) of the definition disposition in subsection 248(1), be a resulting disposition of all or any part of the beneficiary’s capital interest in the trust (which interest or part, as the case may be, is in this subsection referred to as the “former interest”) and the rules in subsections (2) and (3.1) and sections 88.1 and 132.2 do not apply in respect of the distribution,

  • (a) the trust is deemed to have disposed of the property for proceeds equal to its fair market value at that time;

  • (b) the beneficiary is deemed to have acquired the property at a cost equal to the proceeds determined under paragraph (a);

  • (c) subject to paragraph (e), the beneficiary’s proceeds of disposition of the portion of the former interest disposed of by the beneficiary on the distribution are deemed to be equal to the amount, if any, by which

    • (i) the proceeds determined under paragraph (a) (other than the portion, if any, of the proceeds that is a payment to which paragraph (h) or (i) of the definition disposition in subsection 248(1) applies)

    exceed the total of

    • (ii) where the property is not a Canadian resource property or foreign resource property, the amount, if any, by which

      • (A) the fair market value of the property at that time

      exceeds the total of

      • (B) the cost amount to the trust of the property immediately before that time, and

      • (C) the portion, if any, of the excess that would be determined under this subparagraph if this subparagraph were read without reference to this clause that represents a payment to which paragraph (h) or (i) of the definition disposition in subsection 248(1) applies, and

    • (iii) all amounts each of which is an eligible offset at that time of the taxpayer in respect of the former interest;

  • (d) notwithstanding paragraphs (a) to (c), where the trust is non-resident at that time, the property is not described in paragraph (2.001)(b) or (c) and, if this Act were read without reference to this paragraph, there would be no income, loss, taxable capital gain or allowable capital loss of a taxpayer in respect of the property because of the application of subsection 75(2) to the disposition at that time of the property,

    • (i) the trust is deemed to have disposed of the property for proceeds equal to the cost amount of the property,

    • (ii) the beneficiary is deemed to have acquired the property at a cost equal to the fair market value of the property, and

    • (iii) the beneficiary’s proceeds of disposition of the portion of the former interest disposed of by the beneficiary on the distribution are deemed to be equal to the amount, if any, by which

      • (A) the fair market value of the property

      exceeds the total of

      • (B) the portion, if any, of the amount of the distribution that is a payment to which paragraph (h) or (i) of the definition disposition in subsection 248(1) applies, and

      • (C) all amounts each of which is an eligible offset at that time of the taxpayer in respect of the former interest; and

  • (e) where the trust is a mutual fund trust, the distribution occurs in a taxation year of the trust before its 2003 taxation year, the trust has elected under subsection (2.11) in respect of the year and the trust so elects in respect of the distribution in prescribed form filed with the trust’s return of income for the year,

    • (i) this subsection shall be read without reference to paragraph (c), and

    • (ii) the beneficiary’s proceeds of disposition of the portion of the former interest disposed of by the beneficiary on the distribution are deemed to be equal to the amount determined under paragraph (a).

• Marginal note:Gains not distributed to beneficiaries

  (2.11) If a trust that is resident in Canada for a taxation year makes in the taxation year one or more distributions to which subsection (2.1) applies and the trust elects in prescribed form filed with the trust’s return for the year or a preceding taxation year to have one of the following paragraphs apply, the income of the trust for the year (determined without reference to subsection 104(6)) shall, for the purposes of subsections 104(6) and (13), be computed without regard

  • (a) if the election is to have this paragraph apply, to all of those distributions (other than distributions of cash denominated in Canadian dollars) to non-resident persons (including a partnership other than a Canadian partnership); and

  • (b) if the election is to have this paragraph apply, to all of those distributions (other than distributions of cash denominated in Canadian dollars).

• Marginal note:Election — subsection (2.11)

  (2.12) An election made under subsection (2.11) by a mutual fund trust is deemed, for the trust’s 2003 and subsequent taxation years, not to have been made if

  • (a) the election is made after December 20, 2000 and applies to any taxation year that ends before 2003; and

  • (b) the proceeds of disposition of a beneficiary’s interest in the trust have been determined under paragraph (2.1)(e).

• Marginal note:Flow-through entity

  (2.2) Where at any time before 2005 a beneficiary under a trust described in paragraph (h), (i) or (j) of the definition flow-through entity in subsection 39.1(1) received a distribution of property from the trust in satisfaction of all or a portion of the beneficiary’s interests in the trust and the beneficiary files with the Minister on or before the beneficiary’s filing-due date for the taxation year that includes that time an election in respect of the property in prescribed form, there shall be included in the cost to the beneficiary of a particular property (other than money) received by the beneficiary as part of the distribution of property the least of

  • (a) the amount, if any, by which the beneficiary’s exempt capital gains balance (as defined in subsection 39.1(1)) in respect of the trust for the beneficiary’s taxation year that includes that time exceeds the total of all amounts each of which is

    • (i) an amount by which a capital gain is reduced under section 39.1 in the year because of the beneficiary’s exempt capital gains balance in respect of the trust,

    • (ii) twice an amount by which a taxable capital gain is reduced under section 39.1 in the year because of the beneficiary’s exempt capital gains balance in respect of the trust, or

    • (iii) an amount included in the cost to the beneficiary of another property received by the beneficiary at or before that time in the year because of this subsection,

  • (b) the amount by which the fair market value of the particular property at that time exceeds the adjusted cost base to the trust of the particular property immediately before that time, and

  • (c) the amount designated in respect of the particular property in the election.

• Marginal note:Application of subsection (3.1)

  (3) Subsection (3.1) applies to a trust’s distribution of property to a taxpayer if

  • (a) the distribution is a SIFT trust wind-up event to which section 88.1 does not apply;

  • (b) the property is a share and the only shares distributed on any SIFT trust wind-up event of the trust are of a single class of the capital stock of a taxable Canadian corporation; and

  • (c) where the trust is a SIFT wind-up entity, the distribution occurs no more than 60 days after the earlier of

    • (i) the first SIFT trust wind-up event of the trust, and

    • (ii) the first distribution to the trust that is a SIFT trust wind-up event of another trust.

• Marginal note:SIFT trust wind-up event

  (3.1) If this subsection applies to a trust’s distribution of property, the following rules apply:

  • (a) the trust is deemed to have disposed of the property for proceeds of disposition equal to the adjusted cost base to the trust of the property immediately before the distribution;

  • (b) the taxpayer is deemed to have disposed of the taxpayer’s interest as a beneficiary under the trust for proceeds of disposition equal to the cost amount to the taxpayer of the interest immediately before the distribution;

  • (c) the taxpayer is deemed to have acquired the property at a cost equal to

    • (i) if, at all times at which the trust makes a distribution that is a SIFT trust wind-up event, the taxpayer is the only beneficiary under the trust and is a SIFT wind-up entity or a taxable Canadian corporation, the adjusted cost base to the trust of the property immediately before the distribution, and

    • (ii) in any other case, the cost amount to the taxpayer of the taxpayer’s interest as a beneficiary under the trust immediately before the distribution;

  • (d) if the taxpayer’s interest as a beneficiary under the trust was immediately before the disposition taxable Canadian property of the taxpayer, the property is deemed to be, at any time that is within 60 months after the distribution, taxable Canadian property of the taxpayer; and

  • (e) if a liability of the trust becomes as a consequence of the distribution a liability of the corporation described in paragraph (3)(b) in respect of the distribution, and the amount payable by the corporation on the maturity of the liability is the same as the amount that would have been payable by the trust on its maturity,

    • (i) the transfer of the liability by the trust to the corporation is deemed not to have occurred, and

    • (ii) the liability is deemed

      • (A) to have been incurred or issued by the corporation at the time at which, and under the agreement under which, it was incurred or issued by the trust, and

      • (B) not to have been incurred or issued by the trust.

• Marginal note:Trusts in favour of spouse, common-law partner or self

  (4) Subsection (2.1) applies (and subsection (2) does not apply) at any time to property distributed to a beneficiary by a trust described in paragraph 104(4)(a) where

  • (a) the beneficiary is not

    • (i) in the case of a post-1971 spousal or common-law partner trust, the spouse or common-law partner referred to in paragraph 104(4)(a),

    • (ii) in the case of an alter ego trust, the taxpayer referred to in paragraph 104(4)(a), and

    • (iii) in the case of a joint spousal or common-law partner trust, the taxpayer, spouse or common-law partner referred to in paragraph 104(4)(a); and

  • (b) the distribution of the property occurs on or before the earlier of

    • (i) a reacquisition, in respect of any property of the trust, that occurs immediately after the day described by paragraph 104(4)(a), and

    • (ii) the cessation of the trust’s existence.

• Marginal note:Where subsection 75(2) applicable to trust

  (4.1) Subsection (2.1) applies (and subsection (2) does not apply) in respect of a distribution of any property of a particular personal trust or prescribed trust by the particular trust to a taxpayer who was a beneficiary under the particular trust where

  • (a) the distribution was in satisfaction of all or any part of the taxpayer’s capital interest in the particular trust;

  • (b) subsection 75(2) was applicable (determined without its reference to “while the person is resident in Canada” and as if subsection 75(3) as it read before March 21, 2013 were read without reference to its paragraph (c.2)), or subsection 94(8.2) was applicable (determined without reference to paragraph 94(8.1)(a)), at a particular time in respect of any property of

    • (i) the particular trust, or

    • (ii) a trust the property of which included a property that, through one or more dispositions to which subsection 107.4(3) applied, became a property of the particular trust, and the property was not, at any time after the particular time and before the distribution, the subject of a disposition for proceeds of disposition equal to the fair market value of the property at the time of the disposition;

  • (c) the taxpayer was neither

    • (i) the person (other than a trust described in subparagraph (b)(ii)) from whom the particular trust directly or indirectly received the property, or property for which the property was substituted, nor

    • (ii) an individual in respect of whom subsection 73(1) would be applicable on the transfer of capital property from the person described in subparagraph (i); and

  • (d) the person described in subparagraph (c)(i) was in existence at the time the property was distributed.

• Marginal note:Distribution of property received on qualifying disposition

  (4.2) Subsection (2.1) applies (and subsection (2) does not apply) at any time to property distributed after December 20, 2002 to a beneficiary by a personal trust or a trust prescribed for the purpose of subsection (2), if

  • (a) at a particular time before December 21, 2002 there was a qualifying disposition (within the meaning assigned by subsection 107.4(1)) of the property, or of other property for which the property is substituted, by a particular partnership or a particular corporation, as the case may be, to a trust; and

  • (b) the beneficiary is neither the particular partnership nor the particular corporation.

• Marginal note:Distribution to non-resident

  (5) Subsection (2.1) applies (and subsection (2) does not apply) in respect of a distribution of a property (other than a share of the capital stock of a non-resident-owned investment corporation or property described in any of subparagraphs 128.1(4)(b)(i) to (iii)) by a trust to a non-resident taxpayer (including a partnership other than a Canadian partnership) in satisfaction of all or part of the taxpayer’s capital interest in the trust.

• Marginal note:Instalment interest

  (5.1) If, solely because of the application of subsection (5), paragraphs (2)(a) to (c) do not apply to a distribution in a taxation year of taxable Canadian property by a trust, in applying sections 155 and 156 and subsections 156.1(1) to (3) and 161(2), (4) and (4.01) and any regulations made for the purposes of those provisions, the trust’s tax payable under this Part for the year is deemed to be the lesser of

  • (a) the trust’s tax payable under this Part for the year, determined before taking into consideration the specified future tax consequences for the year, and

  • (b) the amount that would be determined under paragraph (a) if subsection (5) did not apply to each distribution in the year of taxable Canadian property to which the rules in subsection (2) do not apply solely because of the application of subsection (5).

• Marginal note:Loss reduction

  (6) Notwithstanding any other provision of this Act, where a person or partnership (in this subsection referred to as the “vendor”) has disposed of property and would, but for this subsection, have had a loss from the disposition, the vendor’s loss otherwise determined in respect of the disposition shall be reduced by such portion of that loss as may reasonably be considered to have accrued during a period in which

  • (a) the property or property for which it was substituted was held by a trust; and

  • (b) either

    • (i) the trust was non-resident and the property (or property for which it was substituted) was not taxable Canadian property of the trust, or

    • (ii) neither the vendor — nor a person that would, if section 251.1 were read without reference to the definition controlled in subsection 251.1(3), be affiliated with the vendor — had a capital interest in the trust.