Tag: tax

24 May

For wealthy Canadians, it may be time to circle the wagons

Suzana Popovic-Montag Estate & Trust, Estate Planning, In the News, News & Events, Wills Tags: , , , , , 0 Comments

Tax planning and estate planning often go hand-in-hand, so when changes to either are pending, it’s wise to keep an ear to the ground.

Here’s the good news: in its recent 2017 budget, the federal government announced relatively few tax changes that had a significant impact on the tax lives of Canadians.

Now the bad news – and it’s really what the government “said but didn’t do” that has wealthy Canadians worried. The government confirmed again its intentions to target tax rules and planning strategies that benefit the wealthy. This goes back to the 2016 budget when the government stated that it was looking to identify opportunities to reduce tax benefits that unfairly help the wealthiest Canadians.

But in 2017, it’s clear that change is getting closer, and a key target is tax planning strategies involving private corporations that “inappropriately reduce personal taxes of high-income earners.” Specifically, the government intends to review three strategies:

  1. Holding an investment portfolio inside a private corporation to accumulate lower-taxed investing earnings;
  2. Sprinkling income to family members using private corporations; and
  3. Using strategies to convert a private corporation’s regular income into capital gains.

The budget document stated the following about next steps:

The Government intends to release a paper in the coming months setting out the nature of these issues in more detail as well as proposed policy responses. In addressing these issues, the Government will ensure that corporations that contribute to job creation and economic growth by actively investing in their business continue to benefit from a highly competitive tax regime.”

Read the government’s full statement in Chapter 4 of the budget document that starts at page 197: http://www.budget.gc.ca/2017/docs/plan/budget-2017-en.pdf

Ensure any changes are reflected in the estate plan

One fact seems clear – tax changes are coming. And lawyers and advisors to wealthy Canadians may be changing structures and strategies in response. When they do, it’s critical to ensure that the estate planning portion is aligned with these changes.

Revisiting a will? The Hull e-State Planner can ensure nothing is missed

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You can find out more about it here: https://e-stateplanner.com/about/

Thanks for reading,

Suzana Popovic-Montag

03 May

Where is a Trust Resident?

Suzana Popovic-Montag Estate & Trust, Trustees Tags: , , 0 Comments

In the recent decision of The Herman Grad Family Trust v Minister of Revenue, the Ontario Superior Court considered the residence of two trusts, for the purpose of taxation. The Court held that although the trustees of the two trusts were resident in Alberta, the trusts were resident in Ontario and required to pay taxes in Ontario.

The Court restated and applied the test from Fundy Settlement v. Canada:

the residence of a trust for Canadian tax purposes is determined through the “central management and control” test that has historically applied to corporations, that is, where the central management and control of the trust actually takes place.

This test requires a fact-driven analysis. The Court must examine who in reality exercised the powers and discretions vested in the trustee and the place where that person resides. If the trust is, in fact, controlled by a person other than the trustees, the trust resides where the decision-maker resides.

The Court considered a number of factors that indicate management and control of the trust. In particular, the Court considered the trustees’ delegation of certain tasks and decision-making. In this case, the trustees had the power to delegate much of the decision-making in regard to investments to third parties. The Court held that because the delegation was exercised with the care required by the trustees, the trustees satisfied their fiduciary responsibilities, even though certain decision-making was made by third parties.

Although the trustees acted properly in the delegation of the investment responsibilities, the management and control of the trust were actually conducted by third parties. The ability to retract a prior delegation of decision-making is insufficient to establish the trustees retained control of the trust. , To establish the trustees maintained control, it would be necessary to show that the trustees had actively supervised the decision-makers.

The Court found it significant that the trustees had kept few notes of conversations between themselves or with the beneficiaries. As a result, there was insufficient evidence that the trustees turned their minds to certain decisions.

Overall, the evidence established that the decisions were made by the beneficiary of the trusts, who resided in Ontario, or the chief financial officer of the beneficiary’s company, acting on his instructions. Evidence that the trustees had not breached their fiduciary duties was insufficient to show they maintained control of the trusts. Therefore, the trusts were resident in Ontario.

Thank you for reading.

Suzana Popovic-Montag

Other articles you might enjoy:

Trust Residency – The Test Modified

The International Estate: The Concept of Domicile

Antle v The Queen – Appeal Dismissed by the Federal Court of Appeal

25 Apr

The Family Cottage

Hull & Hull LLP Estate Planning, General Interest, Wills Tags: , , , , , , , , , , 0 Comments

With the spring flowers beginning their bloom, and the warm weather slowly settling in, many Canadians turn their attention to summer plans at the cottage.  With this in mind, I thought it would be apropos to consider estate planning and the family cottage.

How to best plan for the family cottage is a question I hear all of the time.

At the outset, according to this Globe and Mail article, it is important to consider whether you want to keep the family cottage in the family at all.

If the answer is yes, there are numerous estate planning vehicles available in order to transfer the cottage.  As discussed in this prior Hull & Hull LLP blog, some options include making a specific bequest in a Will, where it can be left to certain beneficiaries who would receive the cottage absolutely and do with it as they please.  Alternatively, should you wish to impose limitations on what the beneficiaries can (or cannot) do with the cottage, a testamentary or inter vivos trust may be more appropriate.

Of course, any decision should consider the tax implications.  A prior Hull & Hull LLP podcast, found here, highlights the different options for dealing with capital gains tax in relation to the cottage.

Clearly, there are many options available and professional advice should be sought.  Doing nothing is rarely a good idea.  Look no further than the decision of Cowderoy v. Sorkos Estate, where a lengthy dispute ensued over whether the deceased had sufficiently transferred a farm and cottage.

Noah Weisberg

Find this topic interesting?  Please also consider:

14 Feb

Planning for the Twenty-One Year Rule

Hull & Hull LLP Estate & Trust, Estate Planning, Executors and Trustees, Trustees Tags: , , , , , , , , , , 0 Comments

The recent Ontario Superior Court of Justice decision in Ozerdinc Family Trust  provides a helpful reminder as to the steps lawyers should take when advising trustees of a Trust with respect to the twenty one year rule against perpetuities.

Under the provisions of the Income Tax Act, capital property is normally taxed upon its “disposition”.  In the case of a Trust, according to section 104(4) of the Income Tax Act, there is a deemed disposition every twenty one years after the original settlement of the Trust as long as the Trust holds property that is subject to the rule.

Such property includes: shares of a qualified small business corporation, qualified farm property, and qualified fishing property; marketable securities (including mutual funds and portfolio investments); real and depreciable property; personal-use and listed-personal properties; Canadian and foreign resource properties; and, land held as inventory.  At the same time, certain types of capital property are exempt or excluded from the operation of the rule depending on such factors as residency or the nature of the trust.

In order to avoid and/or mitigate any taxes owing as a result of the deemed disposition, there are numerous planning options available to trustees including changing the residency of the trust, or entering into a corporate freeze.  Trustees may also simply decide to do nothing.

Therefore, at a minimum, trustees must consider the date of the impending deemed disposition, as well as available tax planning measures to avoid/mitigate any taxes resulting from the deemed disposition.  An obligation to advise trustees of these issues often falls on the professional who assisted with the settling of a Trust.

In Ozerdinc Family Trust, Justice Marc R. Labrosse found that the defendant law firm was negligent in failing to advise the trustees of the impending deemed disposition date, as well as the available tax planning measures available to them.  Although the facts in this case are nothing novel, it nonetheless acts as a helpful reminder as to the steps lawyers should take when advising trustees of a Trust.

Find this topic interesting?  Please consider these related Hull & Hull LLP Blogs & Podcasts:

Noah Weisberg

01 Feb

Taxation of Trustee Compensation

Suzana Popovic-Montag Executors and Trustees, Uncategorized Tags: , , , , , 0 Comments

Under the common law, trustees are not permitted to take compensation unless authorized to do so by the will or trust document, an agreement of all the beneficiaries, or court order. In Ontario, trustees have a statutory right to compensation. Section 61 of the Trustee Act provides for two types of compensation arrangements: (i) the “fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate” or (ii) compensation “fixed by the instrument creating the trust”.

Bequests made under a will, being capital distributions, are not taxed as income in Canada. On the other hand, compensation claimed by an estate trustee will be subject to income tax.

But does an estate trustee have an obligation to charge HST on the compensation?

The Canada Revenue Agency (CRA) takes the position that executor’s compensation received for administrating an estate, not performed “in the regular course of business”, is income from employment or an office under section 3 of the Income Tax Act (“ITA”). This compensation is therefore subject to income tax for the year the compensation is paid, even if the work was performed over the course of two or more years. An executor who does not administer estates “in the regular course of business” does not appear to have an obligation to charge HST in addition to the compensation.

If the executor’s compensation is considered to be income from employment or an office, the estate trustee or administrator must request a payroll account be opened for the estate and generate a t4 slip for the estate trustee or executor. Pursuant to section 153(1) of the ITA, the estate must withhold an amount determined by the Income Tax Regulations.

If the executor administers estates “in the regular course of business,” HST must be imposed pursuant to Part IX of the Excise Tax Act (“ETA”). Accordingly, trust companies must charge HST for any compensation claimed. Whether a lawyer must charge HST on compensation for administration of an estate is a question of fact. A lawyer whose regular practice includes the administration of estates must charge HST on claimed compensation. Conversely, a lawyer who does not administer estates as a part of his or her practice but acts as an executor for the estate of a friend or family may not be under an obligation to charge HST on the compensation they claim. In this case, the compensation would be considered income from employment or an office rather than income earned in the regular course of business.

Thank you for reading.

Suzana Popovic-Montag

Other articles you might enjoy:

Solicitor as Estate Trustee: Compensation Agreements

Pre-taking Compensation as an Estate Trustee

Executor and Trustee Compensation


05 Jan

Simple mistakes are sometimes the hardest to avoid.

David Freedman Estate & Trust, Estate Planning, General Interest Tags: , , , , 0 Comments

As a professional, one is never pleased to hear of a colleague being found liable in negligence. However, there are always lessons to be learned.


Ozerdinc Family Trust v. Gowling Lafleur Henderson LLP is unfortunately an example of a case where, apparently, a simple failure to account for the deemed disposition date of trust assets resulted in an avoidable tax liability. While the defendant solicitors admitted acting below the standard of care in failing to inform the plaintiffs respecting the date and consequences of the deemed disposition of the capital assets of the trust, liability was resisted on the theory that the mistake didn’t cause the loss as the plaintiffs/trustees had retained accountants who, the plaintiffs pleaded, should have been tracking and reporting on the deemed disposition date. The point was determined in a motion for summary judgment which was decided in favour of the plaintiffs; the mistake was sufficiently causative on its own.

What can one learn? It seems reasonable that the culprit here is faulty communication given that the firm and lawyers involved were of adequate experience and expertise to meet the applicable standard of care. As LawPro reminds us, mistakes are easy to make and standardized reporting systems help to avoid such errors.


Other articles you might enjoy:

Reliance of an Estate Trustee upon counsel: Is reliance always reasonable?

The Interpretation of Releases

Costs Sanctions and other Lessons

03 Jan

New Life Insurance Tax Regime

Ian Hull Estate Planning Tags: , 0 Comments

On January 1, 2017, new rules for taxation of personal life insurance policies came into effect. In 2014, Bill C-43, received royal assent but its new rules on life insurance took effect this week. This marks the first change to taxation of life insurance since the 1980s.3oexfdxo6k

Key changes include:

  • Lower tax-sheltered savings limit
  • Changes to the “250% Rule” that may allow lump sum deposits in the later years of a policy
  • Less tax free income from annuities
  • Lower tax free withdrawal room for business owners
  • Changes to the rules on multi-life policies, which may affect the tax advantages of such plans

Plans issued prior to December 31, 2016 are grandfathered to the old rules, but any plans issued in the future will be subject to the new rules. A policy might lose its grandfathered status if it is converted from one kind of life insurance to another or if additional coverage is added to the policy. Changes that will not affect the grandfathered status of a plan include changing the beneficiary designation of the plan, transferring ownership, or switching from smoker to non-smoker status.

Life insurance is commonly used in estate planning to supplement the assets of an estate and to avoid certain tax liabilities. It is important that lawyers practising estate law are aware of these changes. For those whose life insurance policy is a central or significant piece of an estate plan, it may be prudent to seek tax advice to understand how these new rules might affect their plans.

Thank you for reading.

Ian M. Hull

Other articles you might enjoy:

How Can Life Insurance Supplement an Estate Plan?

Should Life Insurance Proceeds be Included in the Value of an Estate for Probate Purposes?

Red flags when applying for Life Insurance


29 Dec

Further Comments on the Amendments to the Principal Residence Exemption

Ian Hull Estate & Trust, General Interest, In the News, Uncategorized Tags: , , , , 0 Comments

2015-03-life-of-pix-free-stock-photos-wood-house-garden-nature-finland-escoveriesOn October 3, 2016, the Minister of Finance announced changes to the Income Tax Act. The purpose of these changes is to “improve tax fairness by closing loopholes surrounding capital gains on the sale of a principal residence.”

Although we have previously blogged on the proposed new reporting requirements, there are certain other proposals that merit further discussion.

Limitation Period and Tracing

One change concerns the current limitation period and tracing dispositions of principal residences. Currently, the rules are formulated so that the Canada Revenue Agency (“CRA”) may be barred from assessing or re-assessing an individual, including a trust, for taxation years that end on the third year after the date the CRA issued a Notice of Assessment.

Under the new rule, there will be no limitation period for a taxpayer’s disposition of a principal residence if it is not reported, which may allow the CRA to assess the disposition at any time.

Principal Residence Owned in a Trust

The changes also restrict when a trust may designate a property as a principal residence.

To qualify under the new rules, the beneficiary of the trust must personally reside in the proposed property. Furthermore, only three types of trust may designate a principal residence:

  1. Certain joint spousal and alter ego trusts for the exclusive benefit of the settlor and settlor’s spouse or common-law partner;
  2. Testamentary “qualified disability trusts” for the benefit of the child or a current or former spouse or common law partner of the settlor; and
  3. A trust for the benefit of the settlor’s minor child, where the child’s parents died in the preceding year or years.

Thanks for reading,

Ian M. Hull

Other Articles You Might Enjoy

Tax Issues for Estate Planning – Hull on Estate and Succession Planning #176

Inter Vivos and Principal Residence Trusts – Hull on Estate and Succession Planning Podcast #83

Henson Trust – Advantages and Disadvantages

14 Dec

Material Changes to the Equitable Doctrine of Rectification

Suzana Popovic-Montag General Interest, In the News, Litigation Tags: , , , 0 Comments

Last week, the Supreme Court of Canada released two decisions concerning the equitable doctrine of rectification: Canada (Attorney General) v. Fairmont Hotels Inc. and Jean Coutu Group (PJC) Inc. v. Canada (Attorney General). Fairmont deals with the equitable doctrine while Jean Coutu deals with rectification under Quebec civil law. Together, these decisions materially change the law of rectification by narrowing its scope. Both cases concern rectification for the purpose of tax planning. It remains to be seen what effect, if any, these decisions will have in the estates context.



In Fairmont, Fairmont Hotels and Legacy Hotels entered into a financing agreement that was intended to operate on a tax-neutral basis. When the financing agreement was terminated to allow Legacy Hotels to sell two hotels, there was an unanticipated tax liability for Fairmont. Fairmont applied to the court to rectify their directors’ resolutions to avoid the tax liability. Likewise, in Jean Coutu, a Quebec corporation, the Jean Coutu Group (PJC) made a series of transactions designed to be tax neutral, but were unsuccessful in avoiding tax consequences. After the audit, PJC sought to rectify the documents, arguing the intention of the parties to the transactions was to be tax neutral.

The Doctrine of Rectification Reviewed

In both cases, the court held that a general intention of tax neutrality is insufficient as a basis for rectifying the written documents of an agreement. Instead of looking at the motivation for entering into the agreement, a court must consider what the parties actually agreed to do. In Fairmont, the court stated: “It bears reiterating that rectification is limited solely to cases where a written agreement has incorrectly recorded the parties’ antecedent agreement. […] In short, rectification is unavailable where the basis for seeking it is that one or both of the parties wish to amend not the instrument recording their agreement, but the agreement itself.” In the case of Fairmont, the court held that Fairmont only had a wish to protect its subsidiaries from tax liability, not a plan to do so in concrete and ascertainable terms. Rectification was therefore not available.


The court will grant rectification for two types of error:

(1) where both parties subscribe to a written agreement on the mistaken common understanding that it accurately reflects the terms of their antecedent agreement; and

(2) where there is a unilateral mistake, either in a unilateral act such as the creation of a trust, or where an instrument was created to record an agreement made between parties and one party argues it does not accurately do so.

In the first case, a mutual mistake, the court must be satisfied: “that there was a prior agreement whose terms are definite and ascertainable; that the agreement was still in effect at the time the instrument was executed; that the instrument fails to accurately record the agreement; and that the instrument, if rectified, would carry out the parties’ prior agreement.”  In the latter situation, the preconditions to rectify a unilateral mistake are: “the party resisting rectification knew or ought to have known about the mistake” and “permitting that party to take advantage of the mistake would amount to ‘fraud or the equivalent of fraud.’”

Thank you for reading. 

Suzana Popovic-Montag

Other articles you might enjoy:

The Doctrine of Rectification and Proof in Solemn Form

Rectification – When can a will be changed?

Will Rectified Where Residue Clause Inadvertently Left Out

30 Nov

Upcoming Changes to the Ontario Land Transfer Tax Act

Suzana Popovic-Montag In the News Tags: , , , 0 Comments

Proposed Changes to the Land Transfer Tax Act

The Ontario government introduced Bill 70, Building Ontario Up for Everyone Act (Budget Measures), 2016 (“Bill 70”) for first reading on November 16, 2016. It is currently in its second reading. Bill 70 is an omnibus act that includes significant changes to the Land Transfer Tax Act (LTTA). This change applies only to the Ontario legislation, and does not affect Toronto’s Municipal Land Transfer Tax by-law, which imposes a tax on Toronto transfers in addition to the Ontario land transfer tax.


Once passed, Bill 70 will change the Land Transfer Tax (LTT) rates for commercial property transactions after January 1, 2017 for property exceeding the value of $400,000. The increased rate will not apply to single family homes. Bill 70 does include a grandfathering clause, so the new rates will not apply to agreements of purchase and sale made before November 14, 2016.

Will these changes affect estate administration?

Most simple estates, which may include properties such as a family home or a cottage, will remain unaffected by these changes. Estates with commercial properties may be affected by the increased rates.

 Not all transfers of estate property attract LTT. If the real property is gifted directly to one or more beneficiaries under the terms of a will, then no land transfer tax is payable under the LTTA. Likewise, if real property is transferred to a beneficiary to satisfy an interest on an intestacy, no tax is paid pursuant to the LTTA. It is important to note that whether or not land transfer tax is payable under the LTTA, a Land Transfer Tax Affidavit must be completed.

If real property is sold to a third party for the purpose of paying debts or distributing the proceeds between one or more beneficiaries, land transfer tax must be paid under the LTTA. After January 1, 2017, the value of commercial real property over $400,000 will be taxed at 2%, up from 1.5%. If the estate is in a position to close a commercial property transaction before the year end, it may possible to avoid this rate increase.

You can read the proposed changes to the LTTA and to check on the status of Bill 70 at the Legislative Assembly of Ontario website. 

Thank you for reading. 

Suzana Popovic-Montag

Other articles you might enjoy:

Principal Residence Exemption – New Reporting Requirements

Real Estate and the Matrimonial Home

Real Estate Transactions Involving Powers of Attorney



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