Can a capital gain be distributed to income beneficiaries of a trust?

I was recently asked this rather interesting question and my response was "Yes, most definitely". Why?

My reply stands on two pillars -

Firstly, the capital which would be an asset of some kind, such as fixed property or shares in a company, has not been distributed, it is either still held by the trust or has been disposed of by the trust. Either way, that's a separate transaction from the Capital Gain. The separation of the capital gain has not changed the asset. It is still a piece of fixed property or it is still the same shares.

Secondly, Capital Gains are included in Income Tax (at a specified "inclusion rate") for tax purposes and this supports the argument that they are income in nature and not capital in nature. They arise when a capital asset has been or is deemed to have been, disposed of. The recipient of the asset has only acquired the asset and not the Capital Gain thereon.

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