Written on March 27, 2013 – 7:00 am | by Corina Weigl
The Minister of Finance (Canada), the Honourable Jim Flaherty, tabled the 2013 Federal Budget (“Budget 2013”) on March 21, 2013. Budget 2013 announced a large number of significant tax measures.
Of particular relevance to those involved in estate planning are those related to non-resident trusts and charitable gifting, summaries of which can be found in our Firm bulletin.
Budget 2013 also announced the Government’s intention to consult on measures to eliminate the graduated tax rates applicable to testamentary trusts [one created on and as a consequence of death and typically under a Will] and estates. These tax entities are currently taxed at the same graduated rates applicable to individuals. This can offer an annual tax savings of up to about $17,000. This is in distinction to inter vivos trusts which are taxed at a flat rate equal to 29 percent – the highest federal rate applicable to individuals.
The concern the Government appears to want to address is the perception of an increased use of these tax entities and the resulting erosion of the tax base. It is difficult to understand this as the rationale. An estate only comes into being as a result of an individual’s death. Most individuals do not deliberately die in order to create their estate – it is a foregone conclusion. Similarly, while testamentary trusts may be used to allow for income splitting, there are far more non-tax reasons that drive an individual’s decision to create testamentary trust. For example, second marriages or to address beneficiaries who are minors or otherwise lack capacity to manage property. Perhaps the Government is looking to lend further support to the old adage that “in this world nothing can be said to be certain, except death and taxes”.
A consultation paper will be released to allow for comments to be conveyed on the introduction of these measures. It remains to be seen where this consultation process will lead. Stay tuned.