In June 2013 the Department of Finance (Finance) released a consultation document (the consultation document) relating to the elimination of graduated tax rates for testamentary trusts and grandfathered inter vivos trusts. The consultation document indicated that Finance was concerned with the ability of testamentary trusts to access marginal tax rates as it raised questions of tax fairness and neutrality in comparison to the treatment of beneficiaries of ordinary inter vivos trusts and taxpayers receiving equivalent income directly as well as the potential loss of government tax revenues.
The 2014 federal budget confirmed the Government’s intention to move forward with these proposals, with an exception from flat top-rate taxation for “graduated rate estates” and certain trusts that have beneficiaries who are eligible for the disability tax credit.
Draft legislation released on Aug. 29, 2014 (now contained in Bill C-43) contains more detailed rules designed to move forward with the elimination of graduated rate taxation for testamentary trusts, except in limited situations. On Sept. 28, 2014, CALU made a submission to Finance commenting on certain proposed changes contained in the draft legislation.
