In the recent Federal Budget (with Quebec announcing its intention to harmonize), there were substantial changes to the tax treatment of Estates and Trusts. The proposed rules are set to apply for 2016 and later taxation years. In particular, an Estate will only have access to the graduated rates of tax for up to three years. Thereafter, the highest marginal rate will apply. Trusts created under a will (testamentary trusts) shall not have access to the graduated rates at all once operational.
There are additional measures which will affect the transfer of Canadian real estate or shares with substantial Canadian real estate value to non-resident beneficiaries as Part XII.2 tax may now apply. Therefore, existing trusts and estates must investigate the consequences of these measures and take appropriate action before the end of 2015, because there are no grandfathering rules for existing arrangements.
Testamentary trusts and estates which have already existed for three taxation years at the end of 2015 will be deemed to have a December year-end, with the first such year-end being December 31, 2015.
Also commencing in 2016, there will be expanded flexibility in claiming a donation credit for donations provided under the terms of a will and given within thirty-six months of the death of the deceased. Such donations may be claimed for tax purposes in the year they are made by the estate or an earlier year of the estate, or even carried back as a credit in the last two taxation years of the deceased.
Another new measure calls for quarterly tax instalments for testamentary trusts and estates which exist beyond the three years. Previously, there was no instalment requirement.
We strongly suggest that all current wills be reviewed and restructured where necessary to avoid onerous, unanticipated consequences.
Tax Target – What’s New in the Tax Sector
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