Finance Fix To Life Interest Trust Issues May Come Soon

As part of the 2014 federal budget, the Canadian government enacted significant changes to the taxation of estates and trusts that come into force on January 1, 2016 (see our e-communication Coming Soon: Amendments to the Taxation of Testamentary Trusts). The amendments included changes to the taxation of spousal trusts, common-law partner trusts, alter ego trusts, joint spousal trusts and joint common-law partner trusts (collectively "life interest trusts"). Life interest trusts are generally subject to a deemed disposition of their property on the death of the spouse, settlor, common-law partner or the last to die of the two (as the case may be) (the "life interest beneficiary"). The life interest trust was subject to tax on any accrued gains realized on this deemed disposition, which reduced the distributions to the remaining beneficiaries of that trust. The amendments would have caused the tax payable in respect of a deemed disposition occurring on or after January