Consultation on Testamentary Trust Tax Hike Open Until December 2, 2013

The Department of Finance has announced that the consultation on proposed changes to the way income earned in trusts created in wills are taxed is open until December 2, 2013. Currently, testamentary trusts are taxed the same way as individuals with graduated tax rates. The Harper Government is proposing to adopt the more punitive tax regime that is applied to inter vivos trusts (those that are created and begin during the settlor's lifetime, as opposed to on death). Income earned and retained in inter vivos trusts is generally taxed at the highest marginal tax rate. I wrote about the announcement in the budget here.

According to the Department of Finance website:

The Government proposes measures to amend the income tax rules to apply flat top-rate taxation to grandfathered inter vivos trusts and trusts created by will. In addition, flat top-rate taxation is proposed to apply to estates (“flat top-rate estates”) after a reasonable period of administration. Specifically, a deceased individual’s estate would be considered a flat top-rate estate starting immediately after the 36-month period that follows the individual’s death.³ Estates of deceased individuals would therefore be eligible to retain, as testamentary trusts, access to graduated rates for up to the first 36 months of the estate’s administration. These measures would apply to existing and new arrangements for the 2016 and later taxation years.

Anyone may comment on the proposal, as follows:

Submissions can be emailed to trusts-fiducies@fin.gc.ca.
Also, written submissions can be forwarded to:

Trust Graduated Rates
Tax Legislation Division
Tax Policy Branch
Department of Finance
L’Esplanade Laurier
17^th Floor, East Tower
140 O’Connor Street
Ottawa, Canada K1A 0G5
Facsimile: 613-992-2036