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How does taxation of trusts work?

Did you know that a trust is not a legal entity?


But it is a taxable entity.


Here’s what you need to know about trusts & taxation

- > Trusts submit a T3 form, separate from the settler, beneficiary, and trustee

- > Taxation rate is flat and is the top marginal rate (changes for different provinces and types of income)

- > Year end is December 31st

- > Generally, income from a trust is considered property income. However, there are some types of income that can retain their character


How are trusts used in tax planning?

- > Tax can be shifted to the beneficiary through a distribution to pay a lower taxation rate

- > Gains from Qualified Small Businesses Corporation shares can retain their character in trust. This means the beneficiary can multiple the Capital Gain Exemption when they sell the shares




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