Can a trust elect to have a capital gain taxed in the beneficiary's hands instead of the trust's?

Yes, provided the trust actually pays or makes the capital gain payable to the beneficiary in the same tax year it's realized, and the trust makes the appropriate designation on its T3 return. Done correctly, the trust deducts the designated amount from its own income, and the gain is instead reported and taxed on the beneficiary's personal return, at their own rate, often far more favourable than the top marginal rate a trust would otherwise pay with no personal exemption.

This only works where the beneficiary has a genuine right to receive the amount, either through an actual payment or a clear, enforceable entitlement to demand it, in that same year, a trust can't simply choose, after the fact, to attribute a gain to a beneficiary who received nothing and has no right to anything. The trust deed also has to actually permit this kind of capital distribution; a trust drafted narrowly may not give the trustees the discretion to flow gains out this way at all.

Because the election depends on precise timing, proper documentation of the payment or entitlement, and the trust's own governing terms, it should be planned and filed by the trust's accountant as part of the annual T3 process, not handled informally by the trustees after the fact.