On December 16, 2014, Bill C-43, Economic Action Plan 2014
Act, No. 2, received royal assent. This Bill implements
certain tax measures that were in the 2014 federal budget, as well
as a few additional amendments to the Income Tax Act that
were not previously announced in the budget. Some of the
significant changes that will impact estate planning going forward
are discussed below.
Testamentary trusts will no longer have access to graduated
rates of taxation and instead will be subject to tax at the highest
marginal tax rate. An exception will be made for "graduated
rate estates" (essentially, most estates for the first 36
months) and "qualified disability trusts". These
proposals were first announced in the federal government's 2013
budget, and were discussed in an earlier
There will be increased flexibility that will allow donation
tax credits to be used by either the deceased (in the year of death
or the prior year) or the estate (in the year the charitable gift
is made, an earlier year or the following five years). We discussed
these changes in an earlier post
The income or gain arising from the deemed disposition of the
assets of an alter ego trust, spousal trust or joint spousal trust
(which occurs on either the death of the settlor, spouse or
surviving spouse, depending on the type of trust) will now be taxed
in the deceased beneficiary's terminal tax return, rather than
in the trust. The trust and the deceased beneficiary's
estate will be jointly and severally liable for the payment of the
tax, but it is unclear whether the Canada Revenue Agency will
assess the trust in all cases, or only where the estate is unable
to pay the tax. These changes may be problematic where the
deceased's estate has insufficient assets to pay the tax
liability (since the estate will have no right to the assets of the
trust) or where the beneficiaries of the deceased's estate are
different than the beneficiaries of the trust (since the
beneficiaries of the estate may be liable for the tax without
getting any benefit from the assets in the trust).
The above changes will apply starting in the 2016 taxation
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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