Canadian Bar Association Wills, Estates and Trusts Section's Response to Department of Finance Consultation on Life Beneficiary Trusts

I wish I could come up with a more succinct and catchier title.

In my January 22, 2016 post, I wrote about the Department of Finance's consultation on a proposal to reverse recent changes to the Income Tax Act dealing with who is taxed on the death of a life beneficiary of certain trusts, including spousal trusts. I have described the problem in my earlier post, but suffice it to say that the recent changes would likely wreak havoc on many estate plans.

The Canadian Bar Association Wills, Estates and Trusts section has responded to the Department of Finance, welcoming the proposal to reverse the recent changes, and suggesting further amendments to enhance charitable donations. The letter includes the following:

We wish to express our appreciation for the Department’s responsive engagement on these issues, including your November 16, 2015 correspondence to the Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada, the Conference for Advanced Life Underwriting, and STEP Canada.

The amendments to the income taxation of trusts and estates in the Economic Action Plan 2014 Act, No. 2, SC 2014, c. 39 raised both technical and substantive concerns in the wills, estates and trusts community, particularly with subsection 104(13.4) of the Income Tax Act. The CBA Section welcomes the changes proposed to subsection 104(13.4). They address many of the issues raised by the profession and will be helpful to Canadian taxpayers who otherwise would have been negatively affected by the amendments.

Although outside the scope of the current consultation, the CBA Section would encourage the Department to further consider the following issues:

1. Allowing a distribution of capital from a life interest trust to a beneficiary that is a registered charity or other qualified donee in satisfaction of its capital interest in that trust to qualify for a donation tax credit.

2. Allowing a donation made by a life interest trust after the death of the life beneficiary to have the same flexibility for use of the donation credit as donations made by a graduated rate estate.

The complete letter is available on the CBA website here.