October 29, 2015, No. 2015-31. You only have a few more weeks to revisit your will and estate plans before important new tax changes come into effect on January 1, 2016. Executors, trustees and individuals should pay careful attention to these changes as you may need to take action as soon as possible to preserve estate planning objectives. These changes may require additional tax compliance measures and the forecasting of cash flows for new tax instalment payments starting in 2016.
Under the changes to the estates and trusts rules, many existing testamentary trusts will be taxed at the top marginal tax rate rather than at lower graduated tax rates. All estates and testamentary trusts created upon an individual’s death that occurred on or before December 31, 2012 will be taxed at the top marginal tax rate effective January 1, 2016. This means that these estates and trusts may face a federal tax increase of more than $10,000 per year, plus applicable provincial taxes. In addition, accrued capital gains of life interest trusts (i.e., spousal, alter ego and joint partner trusts) will be taxed in the deceased beneficiary’s terminal return instead of in the trust itself. As an executor or trustee of these estates and trusts, you only have a few weeks left to take action that will preserve the benefit of graduated tax rates that may be available for a second short taxation year ending on December 31, 2015.
However, the new tax rules will also have some potential benefits, as they allow for flexible charitable donation planning, such that a charitable donation can be allocated between the deceased and his or her estate in certain circumstances.
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Information is current to October 26, 2015. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.