Estate, trust and tax planners have long favoured testamentary trusts as vehicles to pass along assets to beneficiaries or heirs. A testamentary trust is generally a trust or estate that is created the day a person dies. Commonly, these trusts are established in a testator’s will.
A significant benefit to testamentary trusts had been that income earned and retained in the trust received the same graduated rate of income tax as an individual tax payer. Unfortunately, under the terms of Bill C-43, after January 1, 2016, all income retained in the trust will now be taxed at the highest rate of tax applicable in the province in which the trust is resident.
There will be two exceptions to this new rule – The Graduated Rate Estate (GRE) and a Qualified Disability Trust (QDT). Read more
For many Canadians the majority of their wealth is held in personally owned real estate. For most this will be limited to their principal residence, however, investment in recreational and real estate investment property also forms a substantial part of some estates. Due to the nature of real estate, it is important to utilize estate planning to realize optimum gain and minimize tax implications.
Key Considerations for Real Estate Investment
- Real estate is not a qualifying investment for the purposes of the Lifetime Capital Gains Exemption.
- Leaving taxable property to a spouse through a spousal rollover in the will defers the tax until the spouse sells the property or dies.
- Apart from the principal residence, real estate often creates a need for liquidity due to capital gains, estate equalization, mortgage repayment or other considerations.
- Professional advice is often required to select the most advantageous ownership structure (i.e. personal, trust, holding company).
Tax time is almost upon us and there are some recent changes which will affect many Canadian residents. The important changes to keep in mind are as follows:
The Family Tax Cut
This is the watered down version of income splitting plan that was introduced by the Harper government in 2011. The provisions allow couples with children under the age of 18 living with them to shift income from a higher income spouse to a lower income spouse so that the combined taxes payable will be reduced. The most that can be taxed in the lower-income spouse’s hands is $50,000 resulting in a federal non-refundable tax credit which will provide maximum savings of $2,000. Read more
In April of each and every year the majority of Canadians collectively experience angst and stress as they complete the ritual of filing their income tax returns. Some, I have been told, get violently ill while others get violently angry. Some go into the ritual well prepared, some so well prepared they do their returns themselves. Others agonize while they try and locate every tax form, receipts for eligible expenses, and, even when finding all of these, they rely on the services of trained professionals to assist them in this necessary but unpleasant task.
Generally, there are two ways to reduce the taxes that we pay in Canada. First of all, practice good financial planning to ensure that all legitimate means of reducing income are used for the income tax year in question. Secondly, make sure you properly complete and file your income tax return and that all your eligible deductions are used on your T1 form.