Skip to content

Client Update: Taxation of Trusts, Estates and Charitable Donation Rules Changing January 1, 2016

The taxation of estates, testamentary trusts and certain “life interest trusts” such as alter ego, joint partner and spousal trusts, and the rules for charitable donations made on death through an estate are changing significantly on January 1, 2016. These initiatives flow from previously announced budgets, and will cause changes to previously established estate plans, wills and trusts.
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.

SHARE

Archive

Search Archive


 
 

Cap or no cap? Court of Appeal confirms damages are substantive law in interprovincial tort claims

November 12, 2024

Joe Thorne & Jennifer Taylor In 2005, a bus accident occurred in Nova Scotia. The people injured in the accident were residents of Newfoundland and Labrador, which is where they sued the bus owner and driver…

Read More

2024 Nova Scotia election: Employer obligations

October 31, 2024

By Killian McParland and Sophie Poulos As recently announced, the next Nova Scotia provincial election will be held on Tuesday, November 26, 2024. Under Nova Scotia’s Elections Act, every employee who is an eligible voter (i.e.…

Read More

Greener light for growth – Province provides further clarity on renewable energy future in Nova Scotia

October 24, 2024

By Sadira Jan, Dave Randell, Nancy Rubin, Kimberly MacLachlan, and Onye Njoku Bill 471, the Advancing Nova Scotia Opportunities Act, received Royal Assent and introduces changes to the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation…

Read More

Bill C-49 is blowin’ a gale: A significant step in offshore renewable energy legislation

October 22, 2024

By Sadira Jan, Dave Randell, Nancy Rubin, G. John Samms, Kimberly MacLachlan, and  Jamie Gamblin Bill C-49 received Royal Assent and will amend the Canada–Newfoundland and Labrador Atlantic Accord Implementation Act and the Canada-Nova Scotia…

Read More

2024 New Brunswick election: employer obligations

October 17, 2024

By John Morse The New Brunswick provincial election is set to take place on Monday, October 21, 2024, with polling hours between 10:00 a.m. to 8:00 p.m. Under the New Brunswick Elections Act, all employees…

Read More

CAPSA releases guidelines on Capital Accumulation Plans and Pension Plan Risk Management

September 11, 2024

Level Chan and Dante Manna On September 9, 2024, the Canadian Association of Pension Supervisory Authorities (CAPSA) released the long-awaited final revisions to Guideline No. 3 – Guideline for Capital Accumulation Plans (CAPs) and the…

Read More

Nova Scotia legislative update: “Stronger Workplaces for Nova Scotia Act” – Bill No. 464

September 6, 2024

Sean Kelly and Tiegan A. Scott On September 5, 2024, the “Stronger Workplaces for Nova Scotia Act” (Bill No. 464) was introduced in the Nova Scotia House of Assembly for first reading by the Honourable Jill Balser…

Read More

Historic human rights ruling: Alberta tribunal sets record with landmark damages award, redefining the rules on compensation and deterrence

September 3, 2024

John A.C. Morse and Lauren Sorel The Human Rights Tribunal of Alberta (the “Tribunal”) recently awarded three complainants a total of $273,274.91 in compensation, with $155,000.00 of this amount designated as general damages – a…

Read More

Zoning changes and constructive taking: Newfoundland and Labrador Court of Appeal affirms the finding in Index v Paradise

August 28, 2024

Stephen Penney and Megan Kieley1 The Newfoundland and Labrador Court of Appeal’s recent decision in Index Investments Inc v Paradise (Town)2 is a significant decision for municipalities. The Court of Appeal endorsed the Newfoundland and…

Read More

Immigration red flags: five organizational issues that open employers to risk

August 15, 2024

By Kathleen Leighton & Brittany Trafford The Temporary Foreign Worker Program (“TFWP”) and International Mobility Program (“IMP”) provide Canadian employers the opportunity to hire foreign workers to address their labour needs, particularly when qualified Canadians…

Read More

Search Archive


Scroll To Top