Can a trust pass its investment losses to beneficiaries?

Arsen Accounting Services · Question 191 · Sources checked October 29, 2026

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Ordinary trusts generally cannot allocate capital or non-capital losses to beneficiaries in the same way they allocate qualifying income. A beneficiary receiving a distribution should not assume the trust's investment loss belongs on their personal return.

Keep the loss with the correct taxpayer

CRA's T3 guidance says net capital losses generally remain available against the trust's taxable capital gains of other years. It identifies limited exceptions for particular trusts. An estate election involving the deceased person's final return is another specific rule, not a general right to pass losses to family members.

Cash distributed and taxable income allocated are also different measures. The trust's accounting statements, tax calculation, and beneficiary slips must be reconciled.

Official guidance: [1].

An example of a misleading assumption

A trust sells investments at a loss and distributes the remaining cash to three beneficiaries. Dividing the cash equally does not mean each beneficiary can claim one-third of the tax loss. The preparer must first determine where the loss remains available under the trust rules.

Prepare the trust-loss file

• Investment sales and supported adjusted cost bases.
• Prior trust returns and unused loss balances.
• Trust deed and distribution resolutions.
• Beneficiary slips and amounts already allocated.

Ask your preparer to document how the loss is used or carried forward and whether a specific exception applies. Do not enter a negative amount on a beneficiary slip merely to match an accounting allocation. Keep the continuity schedule with the trust's permanent records so later gains can be reviewed against the remaining available losses.