Positive news on tax rules for spousal, common-law, alter ego, joint partner trusts
Effective January 1, 2016 there will be significant changes to the taxation of trusts and estates, including alter ego, joint spousal / common-law partner and spousal / common-law partner trusts.
There has been significant uncertainty in the tax community as a result of the impending legislation. Specifically, the new subsection 104(13.4) of the Federal Income Tax Act (the “Act”) raises certain concerns including a misplaced tax liability. Specifically, this subsection causes a tax liability arising from the deemed disposition of a trust’s assets to be taxed in the hands of the deceased’s estate – as opposed to the trust itself. This can be very problematic, particularly in the context of “blended” family / 2nd marriages, as a potential mismatch can arise between who pays the tax and who ultimately receives the assets.
Department of Finance’s (“Finance”) Response
On November 16, 2015, Finance provided welcome guidance in respect to the concerns raised by the tax community. Specifically, Finance has issued a comfort letter acknowledging these and other concerns and have stated that they are prepared to continue further discussions and review specific recommendations including amending subsection 104(13.4) to address the concerns.
Read a copy of Finance’s November 16, 2015 letter here
Finance’s comfort letter is not law and only reflects the intentions of Finance to support a future amendment to the Act to address the concerns which have been raised. Many questions remain unanswered, such as what the ultimate “fix” will look like, whether the amendment will apply retroactively, etc.
It is important that you speak with a professional tax advisor to understand how this latest development may impact your specific estate and trust planning needs.
Henry Korenblum, Manager
Kestenberg Rabinowicz Partners Tax Group
If you have any questions relating to this article, please contact Henry at firstname.lastname@example.org or call 905-946-1300.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.