Budget 2014 – At Least There Was Something Interesting
By: Yvonne Chenier Q.C.
Death and Taxes Becoming More Flexible Where Charitable Donations Concerned
Thanks to the proposals in Budget 2014, if you die after 2015 your Executor will have more flexibility in applying your Charitable Donations Tax Credit (CDTC). If you die before then and leave a charitable donation in your will, your executor must apply the CDTC to income tax that you owe as of the date of your death or in the year preceding. If, your estate makes the charitable donation the CDTC is used by the estate. This has historically caused estate planning challenges.
For those who die after 2015, (i.e. Jan 1st 2016 and forward) and leave a charitable donation in their will, the Executor of the estate “will have the flexibility to allocate the available donation among any of: the taxation year of the estate in which the donation is made; an earlier taxation year of the estate; or the last two taxation years of the individual.” These provisions will provide much needed certainly to estate planners help clients do the right thing while maximizing the after tax dollars available in the estate.
Eliminating tax benefits for certain trusts
Last years’ budget brought on a round of public consultations “on possible measures to eliminate the special tax benefits that arise from taxing at graduated rates the taxable income of testamentary trusts and grandfathered inter vivos trusts”. These trusts enjoy favourable tax treatment allowing beneficiaries access to graduated tax rates. As anticipated, Budget 2014 proposes to proceed to apply flat top-rate taxation to grandfathered inter vivos trusts, trusts created by will and certain estates (including a number of consequential changes). Two exceptions to this are proposed. Firstly, for the first 36 months of an estate that arises on, and as a consequence, of an individual’s death and that is a testamentary trust. Secondly trusts having as their beneficiaries individuals who are eligible for the federal Disability Tax Credit. The 2 exceptions will be welcomed by estate planners for sure. More details will be forthcoming.
Benefits of Immigration trusts coming to an end
One special tax benefit for immigrants coming to Canada is proposed to be ended by Budget 2014. Those who wanted to come to enjoy residency in Canada and could afford to place investments outside of Canada in a trust could do so without having the trust subject to Canadian taxation on its foreign-source income for 60 months. Budget 2014 proposes to eliminate this tax holiday in respect of trusts for taxation years that end after 2014 if at any time that is after 2013 and before Budget Day the 60-month exemption applies in respect of the trust, and no contributions are made to the trust on or after Budget Day and before 2015; or that end on or after Budget Day in any other case.