Trusts are subject to tax on their annual income except to the extent the income is allocated to beneficiaries, in which case the income is subject to tax in the hands of the beneficiaries. Therefore, all income is subject to tax.
Questions concerning the shortfall of tax revenues arising from the establishment of family trusts were raised in 1994 by the Standing Committee of Finance during the committee's study on the taxation of family trusts undertaken pursuant to Standing Order 108(2).
At that time, the committee attempted to ascertain the applicable tax revenues that might have been assessed on deemed taxable capital gains had the extension to the 21-year rule not been enacted by the previous government. Such a determination required knowledge of both the cost base and the current value of assets held by those trusts. However, as trusts are not required to file annual balance sheets, information regarding the assets held by trusts was impossible to obtain.
Hence, attempts to speculate on the value of assets held in trusts and the anticipated shortfall in tax revenues as a result of the extension of the 21-year rule were not successful.
Question no. 89-