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:

1. New paragraph 104(13.4)(b.1) – This new paragraph will, in effect, "turn off" the application of subsection 104(13.4) unless an election is made to have it apply under very narrow circumstances. In plain English, if a "life interest trust" (such as a spousal trust or alter ego trust) has a deemed disposition of its assets because of the death of the applicable person, then any resulting gains will now be taxed in the trust. Without this "fix", the resulting gain would have been taxed in the deceased's hands as I have written about many times before. This proposed change would apply