A loss sustained by the trust on the disposition of property involving an affiliated person is not deductible. However, the loss may give rise to a carry-over mechanism, with rules that vary according to whether the property concerned is depreciable property or non-depreciable property.

Such a loss is deductible in certain circumstances, such as when:

• the trust is deemed to have disposed of:
  • property further to its immigration or emigration, or further to a change in use of the property,
  • a stock option that has expired,
  • a debt that has become a bad debt,
  • a share issued by a corporation that has gone bankrupt or that was insolvent at the time it was wound up;
• the trust becomes exempt or ceases to be exempt from Québec income tax within 30 days following the disposition of the property.

For more information, see section 3.3 of the Guide to Filing the Trust Income Tax Return (TP-646.G-V).