Changes to the taxation of Testamentary Trusts?

By Paul Prendergast on 2013/07/25

Government Invites Comments on Proposals to Improve the Integrity of the Federal Tax System by Limiting Access to Graduated Rates for Trusts and Certain Estates

This is the first salvo in the battle over the taxation of testamentary trusts.   The Government Backgrounder includes the following proposals to reduce or eliminate the tax advantages currently enjoyed by testamentary trusts starting in 2016:

* Taxation at top marginal rate after 36 months of “estate administration”.  Graduated rates only for first 36 months.

* Quarterly income tax installments will be required.

* Elimination of $40,000 AMT exemption.

* Must use calendar year for taxation year.

* Part XII.2 tax applicable on business income where there are non-resident beneficiaries.

* Proposed rules to be effective in 2016 – no grandfathering for existing trusts.

These are significant changes to the current rules.

The comment/consultation period on the proposals is open until December 2, 2013.  I believe both the CBA/CICA joint committee on taxation and STEP are planning on making submissions.


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