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New Trust Reporting Rules Starting 2021

Starting 2021, new trust income tax return filing and information reporting requirements will come into effect for most Canadian trusts.  Non-resident trusts that are required to file a T3 trust tax return are also subject to the new rules.  The changes were announced in the 2018 federal budget and will be applicable for trust taxation year ending on or after December 31, 2021.

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Changes to the Principal Residence Exemption

In 2016, the Department of Finance introduced significant changes to the principal residence exemption rules under the Income Tax Act (Canada). The mandate of these changes was specifically to “improve tax fairness by closing loopholes surrounding the capital gains exemption on the sale of a principal residence”. The proposed changes to the principal residence exemption rules effectively limit the ability of certain taxpayers to reduce or eliminate the capital gain on the sale of their home.

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Valuation “Double-Dipping”

The valuation concept of “double-dipping” refers to the double counting of marital assets; once in the property division and again in the support award. This theory is premised upon the fact that the same cash flows capitalized to determine the value of a spouse’s business (an asset subject to equitable distribution) are also considered a component of that spouse’s total income for support calculation purposes.

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Foreign Reporting Requirements

Recent legislative changes to foreign reporting requirements for Canadian taxpayers requires the reporting of all specified foreign property owned during the year if the cost base of all specified foreign property exceeds $100,000 at any point during the year.

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