All About Estates


A spousal trust, by definition is a trust that must pay or make payable all of its income to the spouse beneficiary on an annual basis.

Nevertheless, there may be a good reason to have the income taxed in the spousal trust. The spouse beneficiary may have in a given year, sufficient income from other sources such that an income designation from the spousal trust may not provide the intended tax savings and it would be more effective to have the income taxed in the Trust. Under the Income Tax Act, the Trustee could elect to have the income taxed in the spousal trust and have the after tax income designated to the spouse beneficiary, designation being key to maintaining the integrity of the spousal trust.

In a recent technical interpretation, the Canada Revenue Agency (“CRA”) outlined specifically what is required for proper designation. CRA noted that a general statement of income to be taxed in the trust is not sufficient. The Trustee must fill out the appropriate election for the total income be taxed in the Trust and attach a statement to the annual return showing the total income being designated and amounts designated in respect of each beneficiary. In the case of a spousal trust, the statement of designation would have one beneficiary on it but the statement must be created and attached to the return nevertheless.

So the issue here is not the lack of flexibility in the taxation and designation of income in a spousal trust, it is in creating the appropriate “paperwork” to make whatever has been decided stick. Consult with the pros to make sure.

Happy New Year and thanks for reading.

About Steven Frye
Baker Tilly WM LLP is a leading, independent audit, tax, and business advisory firm based in Vancouver and Toronto, serving clients across Canada. Drawing on well-trained teams across a variety of disciplines, we ensure the alignment of our professional’s skills and experience with client requirements, resulting in exceptional service and business outcomes.