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Canada Proposes New Tax Rules For Trusts

Monday, January 18, 2016

The Canadian Government has released for consultation draft legislative proposals that would reform the income tax treatment of certain trusts and their beneficiaries.

The Government intends to clarify what types of investment funds are excluded from the loss restriction event rules that otherwise limit a trust's use of certain tax attributes (including losses). It also wants to provide greater flexibility in the income tax rules for recognizing charitable donations made by an individual's former graduated rate estate.

Finally, the Government wants to ensure that income arising in certain trusts on the death of the trust's primary beneficiary is taxed in the trusts, and not in the hands of that beneficiary. This measure would be subject to a joint election for certain testamentary trusts to report the income in that beneficiary's final tax return.

The consultation closes on February 15.