Tax changes announced in January 2016 for certain trusts and loss restriction events

On January 15, 2016 the Department of Finance released proposed legislative changes for consultation. These proposals include:

• Clarifying what types of investment funds are excluded from loss restriction event rules, amending the investment fund definition, expanding the list of trust tax filing obligations for which deferred filing is permitted where the trust is subject to a loss restriction event and making certain other amendments;

• Allowing greater flexibility in the income tax rules for recognizing charitable donations made by an individual’s former graduated rate estate; 

• Ensuring that income arising in certain trusts on the death of the trust’s primary beneficiary is taxed in the trust and not in the hands of that beneficiary, subject to a joint election for certain testamentary trusts to report the income in that beneficiary’s final tax return.

The following questions and answers are based on the proposed measures. Please note that these measures will not become law until they have received Royal Assent.

The CRA will continue to communicate tax changes through its Web site, its forms and publications, its phone enquiries services and other communication channels, as the information becomes available. In the meantime, please consult the Web site of the Department of Finance Canada to find out more.

• Estate donations by former graduated rate estates
• Death of a beneficiary of a spousal or similar trust