Client Update: Taxation of Trusts, Estates and Charitable Donation Rules Changing January 1, 2016
This client update is an attempt to summarize the more significant aspects of the rules. However, there is a great degree of complexity caused by these changes, and it is important for individuals to seek advice specific to their circumstances. The primary aspects of these changes are set out below:
- Testamentary trusts (trusts that are established in a will and arise as a consequence of death of an individual) will now be taxed at the high marginal tax rates for income retained in the trust (currently testamentary trusts are taxed at the graduated tax rates) – this significantly curtails the opportunities to use testamentary trusts for pure tax planning (although many non-tax estate planning reasons for such trusts remain).
- One exception to this is the “graduated rate estate” (“GRE”) which will continue to obtain the benefit of graduated rates for 36 months after the date of death.
- Testamentary trusts established for the benefit of a disabled individual (a qualified disability trust) will also continue to obtain graduated rate taxation.
- Existing testamentary trusts will have a deemed year end on December 31, 2015, and all testamentary trusts (except GREs) will have to have a calendar year end going forward.
- Only GREs are eligible for certain tax planning provisions related to loss carry backs (which are particularly relevant with private company shares) or utilize the new estate donation rules (including the continued elimination of taxable capital gains on donations of marketable securities to public charities).
- Life interest trusts will now have a deemed year end at the end of the day of death of the life beneficiary and all income (including realized capital gains on that deemed disposition) will be deemed payable to the life interest beneficiary and taxable by his or her estate – this shifts the tax burden from the life interest trust to the estate of the life interest beneficiary which is a significant change, and particularly problematic for second relationship, blended family and family-controlled business situations.
- Strategies do exist to avoid this mismatch, but revisions to existing trusts are required for those to be implemented.
- A court ordered variation of irrevocable trusts might be required.
- The new estate donation rules give greater flexibility for those persons who wish to make charitable donations on death – as long as the donation is made by a GRE within 36 months of the date of death, the charitable tax receipt can be carried back to reduce 100% of taxes in the year of death and the year immediately preceding, or 75% of the taxes in the three years of the estate itself or a five year carry forward in the estate, but the donor must be a GRE.
- The new donation rules do not apply to gifts by life interest trusts, so the possibility of charitable giving through life interest trusts has been fully eliminated.
- For more specific information about the new charitable donation rules, please see our separate update “New Tax Rules For Charitable Gifts”.
These rules are extremely significant and affect a great many different estate planning scenarios. We would encourage everyone to review their wills, testamentary trusts and life interest trusts with their professional advisors to determine what changes may need to be made at this time to address these new rules.
Archive
By Jim Cruikshank, Graham Haynes, and Dave Randell On November 3, 2022, the Honourable Chrystia Freeland delivered the Federal Government’s Fall Economic Statement (“FES”). The FES included a number of tax related announcements, including further…
Read MoreBy Stephen Penney, Joe Thorne, and Giles Ayers A new decision from the Supreme Court of Canada, Annapolis Group Inc. v. Halifax Regional Municipality, 2022 SCC 36 (“Annapolis”), has changed the law of constructive expropriation across the…
Read MoreAs part our presenting sponsorship of the Halifax Chamber of Commerce’s Annual Fall Dinner, we are pleased to present a series of thought leadership articles highlighting the dinner’s themes of immigration, recruitment, and labour market…
Read MoreAs part our presenting sponsorship of the Halifax Chamber of Commerce’s Annual Fall Dinner, we are pleased to present a series of thought leadership articles highlighting the dinner’s themes of immigration, recruitment, and labour market…
Read MoreBy Sara Espinal Henao Since its initial launch in January 2015, Express Entry has been a pillar of Canada’s immigration system. Recently passed amendments to the Immigration and Refugee Protection Act (IRPA) promise to drive…
Read MoreBy Brittany Trafford It is no secret that employers in Atlantic Canada are struggling to fill labour gaps. In June 2019 the Atlantic Canada Opportunities Agency (ACOA) published a report[1] indicating that the overall labour…
Read MoreThis article was updated on May 4, 2023. By Brendan Sheridan The Government of Canada has recently taken steps to further protect foreign workers employed in Canada. These efforts by the government have, in some…
Read MoreSadira Jan, Dave Randell, and James Gamblin On October 17, 2022, the Government of Nova Scotia tabled bills that would amend four pieces of legislation in support of future green hydrogen development. The intended impacts…
Read MoreBy Ruth Trask and Josh Merrigan Pay equity is an increasing focus for governments and advocates in the employment world, which means that employers must also pay attention. The Government of Newfoundland and Labrador has…
Read MoreBy Kathleen Leighton Canada is facing considerable labour shortages resulting from a myriad of factors including its aging population and declining birth rates. As a result, our immigration strategy going forward must help drive the…
Read More