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Canadian Govt Consults On Taxation Of Trusts

Tuesday, June 4, 2013

The Canadian Government intends to eliminate the tax benefits that arise from taxing trusts and certain estates at graduated rates.

Graduated rate taxation is provided under the federal tax rules that apply to individuals and certain trusts and estates. The level of taxable income determines the tax rate applied. For 2013, the rates are 15 percent on the first CAD43,561 (USD42,122) of taxable income, 22 percent on taxable income up to CAD87,124, 26 percent on taxable income up to CAD135,054, and 29 percent on taxable income over CAD135,054.

According to the Government, some taxpayers are using estates and trusts to obtain unintended tax advantages. It says that eliminating these graduated rates will ensure increased fairness and neutrality in the federal income tax system, and address the potential growth in tax planning involving existing rules and the associated impact on the tax base.

A flat top-rate tax will be applied in the case of grandfathered inter vivos trusts and trusts created by will. In the case of estates, a flat top-rate tax will be applied after a reasonable period of administration. The proposed changes will not impact on the preferred beneficiary election rules that apply to trusts for the disabled, the rules that apply to trusts for minor children or the rollover rules that apply on the death of a spouse or common-law partner.

The closing date for the submission of comments on the proposals is December 2.