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