Potential Testamentary Trust Tax Changes: Consultation Announced

Written on June 13, 2013 – 9:01 am | by Laura West

My colleague, Corina Weigl, recently blogged about certain initiatives introduced in the 2013 federal budget.  One of these initiatives was the announcement of the federal government’s intention to consult on measures to eliminate the graduated tax rates currently available for testamentary trusts, estates and certain grandfathered inter vivos trusts.

On June 3, 2013, the federal government published documentation formally announcing the consultation and inviting comments from the public.   Available online, this documentation sets out the new tax measures being proposed by the federal government.

This documentation states that the federal government is proposing measures to amend applicable tax rules in order to eliminate the graduated tax rates currently available to grandfathered inter vivos trusts and trusts created by Will – they will now be subject to the same “flat top-rate” taxation as inter vivos trusts.  In addition, it is proposed that flat top rate taxation will apply to estates after a reasonable period of administration. It is proposed that a deceased individual’s estate would be subject to flat top-rate taxation immediately after the 36 month period that follows the individual’s death.  Before such period, the deceased individual’s estate would continue to have access to graduated tax rates.  These measures would apply to existing and new arrangements from 2016 onwards.

A number of other amendments to related tax rules that are consistent with the proposal to eliminate graduated tax rates for testamentary trusts and specified estates are also set out in the government’s documentation, including consequential changes to the income tax instalment system, alternative minimum tax, taxation years, tax administration rules, and other relevant issues.

The consultation is open to the general public until December 2, 2013.  Interested readers may wish to review the consultation documentation online and provide their own comments on these proposals to the federal government.


Laura West

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