CRA confirms post-Vefghi that capital dividends, or trust capital gains distributions, received by a corporate trust beneficiary, do not generate CDA additions until the trust year end

Regarding the situation where a private corporation (Benco) was the beneficiary of a trust holding shares of a private corporation (Opco), CRA confirmed that Vefghi did not change its positions reflecting the following propositions:

• Regarding capital dividends paid by Opco and distributed to Benco by the trust, their amount (to the extent designated under s. 104(20)) would be added to Benco's CDA at the end of the trust's particular taxation year, given that the condition for designation under s. 104(20) could not be satisfied before that time.
• Regarding recognition of the non-taxable portion of a capital gain realized by the trust and then distributed by it to Benco, the lesser of the amounts determined under clauses (A) and (B) in subparagraph (a)(i.1) of the CDA definition would be added to Benco's CDA at the end of the trust's particular taxation year, because, again, the condition for designation under s. 104(21) could not be satisfied before that time.
• In the situation, for example, where the trust was a graduated rate estate (GRE) with a February 28, 2026 year end, and Benco had a December 31, 2026 year end, if the GRE received or realized taxable dividends or capital gains in June 2025 and distributed those dividends or capital gains to Benco in December 2025 (with the expected designations under ss. 104(19) or (21) as at the trust year end), Benco would report those dividends or capital gains in its December 31, 2026 year, because that was the taxation year of Benco in which the particular taxation year of the trust ended.

Neal Armstrong. Summaries of 2 June 2026 STEP Roundtable, Q.4 under s. 104(20), s. 104(21) and s. 104(19).