Almost a year ago, I wrote about a piece of draft legislation
subsection 104(13.4) – that was introduced as part of the
proposals to eliminate graduated rate taxation for Canadian
resident testamentary trusts. I explained how troublesome
subsection 104(13.4) will be when planning the affairs of Canadians
who want to utilize "life interest trusts" such as alter
ego, joint spousal/common-law partner, or spousal trusts.
Subsection 104(13.4) has since become law and will become
effective January 1, 2016. Subsequent to the writing of my November
2014 blog, the CBA/CPA Canada Joint Committee on Taxation
(which I lead this particular matter for the Joint Committee) along
with STEP Canada
and CALU have
been very active in dealing with the Department
of Finance to suggest alternatives and "fixes" to
concerns expressed regarding subsection 104(13.4). In my
opinion, the discussions with the Department have been very
fruitful. Unfortunately, we have not yet seen any legislative
changes to address such concerns and obviously we are not entirely
sure if we ever will. However, for those of you who know me, I am a
"glass half-full" kind of person. I remain optimistic
that the Department of Finance has heard our concerns and will
respond positively when they can (elections and a new government
can have a way of slowing down things).
So, if you're an optimist like me and believe that some
positive changes will eventually come to pass, then what should
trust, estate, and tax practitioners do when dealing with their
clients who may be negatively affected by subsection 104(13.4)?
Well, that is a good question. I have lectured on the graduated
rate estate changes and specifically about subsection 104(13.4)
concerns dozens of times over the last 15 months. I am scheduled to
speak on such matters an additional four times before the end of
this year. My message over the last 15 months has been and will
continue to be the same: practitioners need to plan as if there
will be no changes. In other words, ensure that the negative
implications of subsection 104(13.4) are dealt with when completing
the estate plan for the impacted client. Experienced practitioners,
however, know that such planning is easier said than done and can
have a negative cascading effect. Notwithstanding, diligent and
good practitioners will work through the challenges for the benefit
of their clients.
The Joint Committee, STEP and CALU continue to press forward and
hope for positive changes.
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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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