The drum roll began with the 2013 Federal Budget. The volume rose to a crescendo with the release of the government’s Consultation Paper a few months later. And with a crash of cymbals, the 2014 Federal Budget announced a virtually certain end to the favourable income tax rules governing testamentary trusts: specifically, the treatment of such trusts as separate taxpayers, subject to taxation at the same graduated rights as apply to individuals. This tax advantage was considered by Finance to be unfair because, to use the words of the Consultation Paper, it “effectively allows the beneficiaries of those trusts to access more than one set of graduated rates.” Essentially, Finance was saying that there should never be more taxpaying entities enjoying the benefit of being taxed at graduated rates than there are human beings.
One could not, with a straight face, deny that many a testamentary trust – whether for one’s marital partner or for one’s adult children – has been motivated primarily, if not exclusively, by the opportunity for significant annual income tax savings offered over the term of the trust. However, there are a great many trusts that are established for compelling non-tax reasons.
Barry Corbin practises tax and estate planning, estate administration and mediation of estate disputes in Toronto through Corbin Estates Law Professional Corporation.