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2016 Canadian federal budget predictions

In what’s becoming our firm’s annual tradition, the purpose of this blog is to gaze into the crystal ball to predict what the tax goodies might look like when the 2016 federal budget is released. The timing of such a release is anyone’s guess, but some prognosticators are suggesting the third week of March 2016. We certainly can’t add any credibility to that guess since the timing of the budget release is usually a carefully guarded secret – and rightly so.

With the above in mind, here are our predictions and a bit of a wish list.

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New legislative proposals for trusts – dealing with the subsection 104(13.4) problem

On Nov. 16, 2015, I wrote about the ongoing saga regarding subsection 104(13.4) and some good news that was released by the Department of Finance. Today, the Department of Finance released legislative proposals as a follow-up and are seeking comments on such proposals no later than Feb. 15, 2016. While we are still absorbing some of the material, here are the very quick observations.

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Half a loaf is better than none!

The Federal Court of Appeal’s (FCA) recent French language decision in the appeal of Gervais considered the use of a sale structure commonly referred to as the “half loaf.” In general, this planning technique provides an opportunity to spouses to increase the use of the capital gains deduction (CGD) in cases where only one spouse owns property (and a disposition of which would give rise to an opportunity for use of the CGD). The Tax Court decision in Gervais of Jorre J. was largely based on the finding that a transfer of capital property from one spouse to another, that was immediately resold to an unrelated party, was on account of income and not capital.

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US citizenship renunciation – inheritance tax proposal update

On Dec. 9, 2015, Roy Berg, Paul Barba, and Kevin Kirkpatrick submitted our firm’s comments to the IRS regarding the proposed regulations to section 2801 and will be providing oral comments to the IRS at a hearing in Washington, D.C., on Jan. 6, 2016.

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Canada Revenue Agency releases new Form T1135 to report foreign property

On Dec. 9, 2015, the Canada Revenue Agency (CRA) released a new version of prescribed Form T1135 for taxpayers who own specified foreign property (SFP). The new form allows taxpayers who own SFP that have a total cost between $100,000 and $250,000 a more simplified reporting option.

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Federal tax rate increases for Canadians

On December 7, 2015, Canada’s new Finance Minister, Bill Morneau, tabled measures to reduce the federal individual income tax rate for the $45,282 to $90,563 tax bracket from 22% to 20.5%, and introduced a new 33% top rate bracket for taxable income over $200,000, effective Jan. 1, 2016. Additionally, the Tax-Free Savings Account (TFSA) annual contribution limit will be rolled back to $5,500 after 2015. While these amendments were not unexpected as they were part of the Liberal’s election platform, the proposal also includes subtle but important consequential amendments affecting tax rates/credits for trusts and estates, “kiddie tax”, charitable donations, corporate refundable taxes on investment income for Canadian-controlled private corporations (CCPCs), and Part IV tax. This short blog summarizes these changes and offers some thoughts.

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CRA comments on proposed amendments to subsection 55(2): a new planning era and new opportunities

It is no surprise that the proposed legislation on subsection 55(2) released on July 31, 2015 was a hot-button topic at the Canadian Tax Foundation’s 67th Annual Tax Conference last week in Montreal. What is a surprise was the Canada Revenue Agency’s (CRA) increasing willingness to comment on this draft legislation in Round Table sessions (both at this conference and the APFF Conference on October 9, 2015), when they have largely refrained from doing so with proposed legislation in the past. Accordingly, we will discuss these invaluable comments from the CRA, as well as some insights and planning ideas with respect to proposed subsection 55(2).

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Good news update from the Department of Finance regarding subsection 104(13.4)

On November 4, 2015, I wrote a short blog on the status of the discussions that the CBA/CPA Canada Joint Committee on Taxation, STEP, and CALU (the “Working Group”) have had with the Department of Finance regarding significant issues of concern raised by many tax, trust, and estate practitioners regarding subsection 104(13.4) of the Income Tax Act.

Today, I’m pleased to share with you a letter that the Department of Finance just released. In short, it states the Department of Finance has heard our concerns and is prepared to continue further discussions relating to specific recommendations made by the Working Group to amend subsection 104(13.4) to deal with the misplaced tax liability and charitable donation mismatch concerns.

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Update on new Canadian trust taxation legislation – subsection 104(13.4)

Almost a year ago, I wrote about a piece of draft legislation – subsection 104(13.4) – that was introduced as part of the proposals to eliminate graduated rate taxation for Canadian resident testamentary trusts. I explained how troublesome subsection 104(13.4) will be when planning the affairs of Canadians who want to utilize “life interest trusts” such as alter ego, joint spousal/common law partner, or spousal trusts. Subsection 104(13.4) has since become law and will become effective January 1, 2016.

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Tax rates, politics, and why you can’t hate your brother-in-law

Regardless of your political affiliation or philosophy on tax policy, change is coming. While we don’t have to welcome the change with loving arms, we do have to figure out how to productively work with it. We cannot, however, take up arms, become entrenched in our positions, and curse the new reality.

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US citizenship renunciation could mean a steep inheritance tax

Renouncing US citizenship or giving up one’s long-held green card does not necessarily mean forever severing all ties with the US. Many former Americans, especially those in neighbouring Canada and Mexico, also have family and friends who are still US residents or US citizens, and to whom they want to eventually gift or bequeath assets. Under section 2801 of the Internal Revenue Code, US citizens or US residents who received gift or inheritance from “covered expatriates” (as defined in 877) are subject to an inheritance tax imposed at 40% of the value of the gift or inheritance. Regulations recently proposed by the US Treasury have clarified how and when this tax will be imposed. The new proposed regulations underscore the importance of carefully planning renunciations, gifts, and bequests.

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