Bill C-43 Brings Changes for Spousal and Joint Partner
Trusts: Expiring Clients, Expiring Tax Opportunities
By Faizal Valli, CPA, CA, and Brendan L’Heureux, LLB, CPA, CA
Faizal Valli is a senior manager
in tax services with Ernst &
Young LLP in Vancouver,
specializing in tax and estate
planning for private clients.
Brendan L’Heureux is a tax
senior at Ernst & Young LLP in
Vancouver.
T
he November/December 2014 issue of CPABC in Focus included a tax article entitled “Spousal and Joint Partner
Trusts – A Case Study Highlighting Benefits and Important Tax Considerations,” which reviewed the benefits
and tax considerations of spousal and joint partner (JP) trusts. On December 16, just a few weeks after that issue
was published, Bill C-43, the Economic Action Plan 2014 Act, No. 2, received royal assent. The tax changes Bill C-43 has
introduced are significant enough to warrant a second look at spousal and JP trust planning. These changes may herald
unanticipated tax consequences for established trusts, and practitioners need to consider how to mitigate the coming
impacts.
Changes and additions
As discussed in the November/December 2014 article, a settlor of any age may create a spousal trust for the benefit of
their spouse,1 while a settlor aged 65 or older may create a JP trust for the benefit of either partner. Any number and
types of residual beneficiaries are permitted under either trust vehicle, although they do not become entitled to trust
income or capital until the (last surviving) spousal beneficiary has died.
The 2014 article presented a case study in which spousal or JP trusts were considered for a John and Jane Doe. Some
of the tax considerations reviewed in that article have changed materially as a result of Bill C-43’s passing—notably:
• Deemed dispositions on the death of the (last surviving) spousal beneficiary;
• Charitable donations made on death; and
• Capital gains deduction claims by a spousal trust.
In addition, the following new tax concepts warrant special attention:
• The introduction of graduated rate estates (GREs) and
• The mismatching of tax liability between trust and estate.
The spousal and JP trust benefits of probate savings and the avoidance of wills variation still apply notwithstanding the
changes introduced by Bill C-43. However, for taxpayers who are in a position to alter their current or proposed trust
arrangements, careful reflection is required.
Graduated rate estates introduced
Bill C-43 has restricted the availability of marginal tax rates to testamentary trusts by introducing the concept of GREs.
As mentioned in the July/August 2015 issue of CPABC in Focus,2 a GRE is a testamentary trust arising on, or as a consequence of, an individual’s death, and this testamentary trust must be designated as a GRE on its first tax return.
All testamentary trusts are currently subject to marginal (graduated) tax rates. Beginning in 2016, however, only GREs
will be subject to these rates. The benefits afforded to GREs will include:
• Taxation at marginal tax rates on income earned within the GRE for its first 36 months;
• New charitable donation rules (discussed below) for donations made by will or in the GRE; and
• A capital gains exemption on share donations.
Throughout this article, the term “spouse” refers to a spouse or common-law partner, and includes same-sex partners.
1
Stephanie Yu, CPA, CA, “Post-Mortem Donations – Legislative Changes and Their Impact,” CPABC in Focus, July/August
2
2015 (26-28).
40 CPABC in Focus • Sept/Oct 2015