Trusts

Question 1

Trust Tax Basics - How is trust income taxed if retained vs paid/payable?

Answer 1

Retained: taxed in trust (top rate unless GRE/QDT). Paid/payable: deducted by trust; taxed to beneficiary with source character (T3).

Question 2

Trust Tax Basics - What does “paid or payable” mean?

Answer 2

Beneficiary received the amount or had a legal right to it by year-end (trustee resolution/terms).

Question 3

Trust Tax Basics - Do amounts keep their character to beneficiaries?

Answer 3

Yes—interest, eligible/non-eligible dividends (gross-up/credits), capital gains, foreign income/credits flow through via designations.

Question 4

Inter-Vivos – Standard - What’s the tax rate on retained income?

Answer 4

Top personal rate (no basic personal amount).

Question 5

Inter-Vivos – Standard - When is the deemed disposition?

Answer 5

Every 21 years on property still held.

Question 6

Inter-Vivos – Standard - Are distributions deductible to the trust?

Answer 6

Yes—amounts paid/payable are deductible to the trust and taxable to beneficiaries.

Question 7

Inter-Vivos – Spousal - What triggers attribution back to settlor?

Answer 7

Transfers/loans to the trust for spouse/Capital Loan Provisions (CLP) below FMV or low interest → income & gains attribute to settlor (s.74).

Question 8

Inter-Vivos – Spousal - Is there a rollover on transfer to a spousal trust?

Answer 8

Generally no automatic rollover inter-vivos; attribution usually applies unless FMV sale or prescribed-rate loan.

Testamentary spousal trusts have a rollover. Clear distinction here.

Question 9

Inter-Vivos – Alter Ego - Who can benefit during lifetime?

Answer 9

Only the settlor (65+).

Question 10

Inter-Vivos – Alter Ego - Tax treatment of transfer-in and disposition timing?

Answer 10

Rollover on transfer in; deemed disposition at settlor’s death (no 21-year while settlor alive).

Question 11

Inter-Vivos – Joint Partner - Who can benefit during lifetime?

Answer 11

Settlor and spouse/CLP (both 65+).

Question 12

Inter-Vivos – Joint Partner - When is the deemed disposition?

Answer 12

At the later of the two deaths.

Question 13

Inter-Vivos – s.75(2) - When does it apply?

Answer 13

If property may revert to settlor, cannot be disposed without settlor’s consent, or settlor may direct to themself → all income & gains from that property attribute to settlor; triggers 107(4.1) rollout restriction.

Question 14

Attribution Rules - How do minor-child rules work via a trust?

Answer 14

Property income (interest/dividends) attributes to the transferor; capital gains do not (s.74.1(2)).

Question 15

Attribution Rules - How do you avoid attribution?

Answer 15

FMV transfers or prescribed-rate loans with interest paid by Jan 30 each year, plus no s.75(2) control.

Question 16

Testamentary – Standard - Tax rate on retained income?

Answer 16

Top rate since 2016 (no graduated rates), except GRE/QDT.

Question 17

Testamentary – Standard - Deemed disposition timing?

Answer 17

21-year anniversaries from creation (date of death).

Question 18

Testamentary – Spousal - What’s special about tax and timing?

Answer 18

Rollover on death to the spousal trust; deemed disposition at spouse’s death (not 21-year).

Question 19

Testamentary – Spousal - Rate on retained income today?

Answer 19

Top rate (spousal trust isn’t a GRE).

Question 20

Testamentary – GRE - What is a GRE?

Answer 20

The estate designated as the deceased’s Graduated Rate Estate for up to 36 months; gets graduated rates and special options (off-calendar year-ends, donation flexibility, loss carrybacks).

Question 21

Testamentary – GRE - Can a spousal trust be a GRE?

Answer 21

No—GRE is the estate itself, not other testamentary trusts.

Question 22

Testamentary – QDT - What is a Qualified Disability Trust?

Answer 22

A testamentary trust with a DTC-eligible beneficiary that elects QDT status; gets graduated rates beyond 36 months.

Question 23

Testamentary – QDT - Key limits?

Answer 23

One QDT per DTC-eligible beneficiary; trust and beneficiary resident in Canada; joint election required annually.

Question 24

Deemed Disposition & Rollovers - What’s the 21-year rule purpose?

Answer 24

Prevent indefinite deferral—forces FMV disposition inside the trust on each 21-year anniversary (unless deferred as noted for spousal/AET/JPT).

Question 25

Deemed Disposition & Rollovers - Do AET/JPT face the 21-year rule?

Answer 25

Deferred until death: AET at settlor’s death; JPT at later of deaths.

Question 26

Deemed Disposition & Rollovers - What’s the spousal rollover at death?

Answer 26

Property can roll over at ACB to a spouse or to a spousal/partner trust under the will if conditions are met.

Question 27

TOSI - When can adult beneficiaries face TOSI on trust distributions?

Answer 27

When income (e.g., private-company dividends allocated via a trust) is split income and no exclusion applies → taxed at top rate.

Question 28

Non-Arm’s-Length - Why does it matter for trusts?

Answer 28

Below-market transfers/loans to a spouse/minor trigger attribution; non-arm’s-length FMV must be respected to avoid it.

Question 29

Exam Traps - Who’s taxed when income is paid to a beneficiary?

Answer 29

Beneficiary (trust claims deduction); no double tax.

Question 30

Exam Traps - What tax rates do most testamentary trusts face today?

Answer 30

Top rate, except GRE (36 months) and QDT.

Question 31

Exam Traps - Name three ways to avoid attribution in inter-vivos planning.

Answer 31

FMV sale, prescribed-rate loan with timely interest, and draft to avoid s.75(2) control/reversion.