This discussion is a continuation of our earlier Tax Alert and will focus on selected traps
that taxpayers should be aware of when undertaking tax planning
involving trusts. Although there are many different types of
trusts, the focus of this discussion will be on discretionary
family business trusts with Canadian resident trustee(s) and
beneficiaries.
Over the last several years, the Department of Finance has
enacted changes to income tax legislation to close perceived tax
loopholes while attempting to maintain relatively low corporate tax
rates. As part of these sweeping changes, there has been a trend to
increase the personal tax cost on distributions of corporate
surplus. This trend may result in business owners reviewing
income-splitting opportunities to extract corporate surplus in a
tax-efficient manner. Although there are a number of
income-splitting strategies, using a family business trust to hold
a company's shares is particularly beneficial.
