2016 STEP CANADA CRA ROUNDTABLE

Transcription

1 June 10, 2016 Michael Cadesky, FCPA, FCA, TEP Kim Moody, FCPA, FCA, TEP Marina Panourgias, CPA, CA, TEP Phil Kohnen, CPA, CMA, TEP Paul LeBreux, LL.M., TEP Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 1

2 Question 1 What is the Graduated Rate Estate (GRE)? Important for many reasons Only the GRE can: claim subsection 164(6) loss carryback have 50% v. 100% capital loss denial (50% solution) claim donations in the Estate itself Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 2

3 CRA said in individual deceased = 1 Estate Multiple Wills, different executors, Canadian and foreign assets BUT 1 Estate Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 3

4 Suppose Will provides for Spousal Trust and Trust for Children. Deceased Estate Spousal Children Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 4

5 a) Does this mean Estate must remain until the tax planning is completed (so there is a GRE)? What is filed for the Spousal Trust and Trust for Children? Do they exist if they hold no assets? b) Suppose the person died in 2014 and assets transferred to Spousal Trust and Trust for Children in If so, no GRE in 2016? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 5

6 c) Can assets be transferred back to GRE? d) Donations can be carried forward 60 months in the GRE. To use them, does this mean GRE must stay in existence (potentially 60 months)? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 6

7 Question 2 Invalidating the GRE/Multiple Wills? Individual has 2 Wills Will 1 Canadian assets, Canadian executors Will 2 Foreign assets, foreign executors Foreign assets, Will 2 not known to executors of Will 1 (at least not on timely basis). Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 7

8 Domestic executors designate the Estate (assets of Will 1) to be a GRE. Does this make the GRE invalid if executors of Will 2 do not also designate? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 8

9 Question 3 Distribution from Inter Vivos Trust to GRE Beneficiary of Inter Vivos Trust is the Estate. Post-death, distribution made to the Estate. Does this invalidate the GRE? Inter Vivos Trust distribution Estate Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 9

10 Question 4 Qualified Disability Trust (QDT) and Preferred Beneficiary Election (PBE) An Estate can have graduated tax rates beyond 36 months if the testamentary trust is a Qualified Disability Trust (QDT). Various conditions apply. Joint election of the QDT and beneficiary with disability. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 10

11 Only one QDT. Suppose each grandparent sets up a trust for the disabled person. Can only one be a QDT? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 11

12 Preferred Beneficiary Election allows income of trust to be treated as income of Beneficiary without it being paid or payable. Only applies for beneficiary with disability. Suppose four testamentary trusts, one is a QDT. Can the PBE be made for all four testamentary trusts? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 12

13 Question 5 Capital Loss Carryback and Late Filed Subsection 104(13.2) Designation From 2016 onwards, designations under subsections 104(13.1) and (13.2) not permitted unless taxable income is nil. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 13

14 Suppose capital gain is paid out and reported by beneficiary. May wish to have capital gain taxed in the trust for loss carryback utilization. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 14

15 Example Trust capital gain paid out Later, a capital loss arises (perhaps on a share redemption with a deemed dividend). Idea is to carry back the capital loss and apply against capital gain. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 15

16 Issue is now less pressing since amendment to legislation proposed. Previously a capital gain of a spousal, alter ego, joint partner trust had to be recognized by the deceased. Does a loss carryback that reduces taxable income to nil allow the capital gain to be repositioned back in the trust? Beneficiary files amended tax return. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 16

17 Question 6 Instalment Requirements for Trusts From 2016, instalments required for testamentary trust (except GRE). Inter vivos trusts always had instalment requirements but CRA waived this by administrative practice. What is the current position? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 17

18 Question 7 Deemed Resident Trust and CCPC Status Trust is non-resident factually but deemed resident under section 94 (say has Canadian resident contributor). Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 18

19 Deemed resident trust (DRT) controls a Canadian private corporation (Canco). Is it correct that Canco is NOT a CCPC? DRT control Canco Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 19

20 Question 8 Characterization of LLPs and LLLPs Some U.S. states allow partnerships where no partner is liable for liabilities of the partnership. CRA s position on an LLC is that it is a company and therefore a corporation, hence a foreign corporation. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 20

21 What is CRA s position on foreign LLPs and LLLPs where no partner has liability for the debts of the partnership? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 21

22 Question 9 Support for U.S. Foreign Tax Credit Claim CRA now seems to want an assessment (transcript from the IRS) or other similar proof of U.S. tax paid. A U.S. tax return on its own seems no longer sufficient. What is CRA s position? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 22

23 Question 10 U.S. Revocable Living Trusts U.S. revocable living trust Settlor is sole trustee, and sole beneficiary during lifetime. After death, others may benefit under the trust. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 23

24 Trustee is Settlor Settlor creates trust, contributes property Revocable Trust Beneficiaries Settlor during life, after that others Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 24

25 a) Per DeMond v. R. 4 C.T.C Tax Court determined such a trust was a bare trust as settlor was at all times true beneficial owner. Does CRA agree? b) After death, what does beneficiary acquire (the property or a trust interest)? What is ACB? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 25

26 Question 11 Tainting of a Spousal Trust Per paragraph 8 of archived IT-305R4 Once a trust qualifies as a spouse trust it remains a spouse trust even if varied by agreement, legal action on breach of trust. However these events may cause other provisions to apply CRA provided views at 2016 CALU conference. Please share these views. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 26

27 Question 12 Amounts Payable and Phantom Income To be taxed in a beneficiary s hands, income of a trust must generally be paid or payable to the beneficiary. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 27

28 Income can arise for tax purposes without a transaction. Examples include deemed dispositions. One example is a section 48.1 election (Canadiancontrolled private corporation which is a small business corporation becomes public, can elect for a disposition at proceeds between cost and FMV). Can such income be paid or payable to a beneficiary and how? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 28

29 Question 13 Filing T-3 for Subsection 75(2) Trust Per subsection 150(1.1), no tax return is required by Canadian resident individual (including a trust) unless: tax is payable or has taxable capital gain or disposes of capital property Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 29

30 T-3 Guide implies a T-3 is required where property is held subject to subsection 75(2). Comment please. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 30

31 Question 14 Update on Tax Informant Program Please provide updated statistics on the program. [How do we sign up?] Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 31

32 Question 15 Trust and Estates Issues Other comments CRA would like to make on recent technical interpretations. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 32

33 June 10, 2016 THANK YOU Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 33