Tax Tips and Reminders – September 2024
Following up from our last newsletter on June 12 regarding changes to the capital gains inclusion rate, the Department of Finance has updated their website to provide clarifications for the transition period. It is now clarified that trusts will be required to disclose to their beneficiaries in prescribed form which period the capital gains relate to (i.e. before or after the June 25 effective date). This ensures that recipients will be able to report the capital gains using the appropriate inclusion rate rather than being deemed at the higher inclusion rate. Another issue that is now clarified relates to the capital gain reserves when capital gains are deferred to a later year due to the delayed receipt of your sale proceeds. Although the sale occurred prior to the effective date, capital gains are considered realized when it is brought out of the reserve in a subsequent year. For the transition period where the tax year includes the June 25 effective date, the capital gain is deemed to be realized on the first date of that tax year when determining which inclusion rate to use. In other words, if a taxpayer has a taxation year that begins before June 25, 2024 and ends after June 24, 2024, any capital gain brought out of reserve in that taxation year would not be subject to the higher basic inclusion rate. More information can be found here https://www.canada.ca/en/department-finance/news/2024/06/capital-gains-inclusion-rate.html
Following up from our newsletter on March 11 and March 28 regarding bare trust reporting requirements. The government has introduced draft legislation that introduces a new concept of Deemed Trust. The draft legislation alters the exceptions and narrows the scope for who must file. A common scenario which is now included as an exception is for real property where the legal owners are related to each other, and the property could be designated as the principal residence for one or more of the legal owners. For example, when parents are on title with their children for mortgage purposes, or when adult children are on title with their parents for estate planning purposes. The new filing requirements will be applicable for trust tax years ending on or after December 31, 2025 (i.e. not applicable for the 2024 year). We will provide more information as it becomes available.
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