“Bill C-43 has introduced significant changes
to the trust and estate-planning landscape
[that] will apply to all taxpayers.”
Spousal and JP trust deeds will need to be
amended to address how the mismatch in
tax liability will be handled and funded.
Careful planning will be required to avoid
tainting the spousal or JP trust, or the GRE
status of an estate.
Additionally, beneficiaries of an estate may find their own residual interests eroded by a tax
liability that arises from the spousal or JP trust’s deemed disposition. The fact that each trust
may have different beneficiaries means that beneficiaries of a spousal or JP trust could potentially see the tax consequences of deemed disposition absorbed by an unrelated group.
To avoid these scenarios, the Department of Finance has stated its intention for the CRA to
enforce the tax liability “…. as though the [inter-vivos] trust were liable in the first instance for
that amount.”7 This could create a precarious situation—if the tax liability relating to the spousal or JP trust remains unpaid, the beneficiaries of the estate would have to rely on the CRA
enforcing this tax liability against the spousal or JP trust rather than the estate. Furthermore,
spousal or JP trusts likely will not contain provisions that allow them to distribute property to
the estate. In addition, the CRA might only be swayed by the Department of Finance directive
when collecting a tax liability. The time lag between when the tax liability arises and when the
CRA begins collection is also a cause for concern, because if an estate does not pay at the time
of filing (and it may not be able to afford to do so), interest and penalties could ensue from that date.
New charitable donation rules
created
Currently, donations made by will are deemed
to be made immediately before an individual’s
death, and the resulting donation tax credit
may be used in the terminal return or carried
back to the preceding tax year. Donations
made by a spousal or JP trust are not afforded
the same flexibility.
Effective 2016, however, donations made
by will or by any estate will be deemed to be
made at the time the property is transferred
to the charity, and it will be possible to carry
unused donations forward for up to five
years, matching the carry-forward period
currently allowed for individuals. For GREs,
it will be possible to claim such donations on
the deceased individual’s terminal or prioryear tax return, or on the GRE’s tax return.
There are no changes to donations made by
a spousal or JP trust.
Using the practical example of John and
Jane Doe once again, it will no longer be
necessary for a spousal or JP trust to plan
charitable donations, since there will be neither deemed disposition nor tax liability in
either trust. Under the new rules, donations
should be made in John’s and/or Jane’s will(s).
Therefore, if current spousal or JP trusts
contain charitable intentions, careful planning is in order.
See clause 57, “Joint Liability – Spousal and Similar Trusts,” Explanatory Notes Relating to the
7
Income Tax Act, Excise Tax Act, Excise Act, 2001 and Related Legislation, October 2014.
(www.fin.gc.ca/drleg-apl/2014/bia-leb-oct20-1014-n-eng.asp)
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The impact will be far-reaching
Bill C-43 has introduced significant changes
to the trust and estate-planning landscape,
and no