Certified Financial Planner (CFP) Practice Exam · Question
Following 2016 changes to the Income Tax Act, how are most newly created testamentary trusts now taxed?
Effective for testamentary trusts created after 2015, most are now taxed at the highest marginal personal tax rate, primarily to prevent income splitting advant
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Question: Following 2016 changes to the Income Tax Act, how are most newly created testamentary trusts now taxed?
Answer options: ✅ At the highest marginal personal tax rate.
- At the graduated personal tax rates, provided they are Qualified Disability Trusts.
- At a flat rate of 15% of all income.
- They are tax-exempt for the first $100,000 of income.
Correct answer: At the highest marginal personal tax rate.
Explanation: Effective for testamentary trusts created after 2015, most are now taxed at the highest marginal personal tax rate, primarily to prevent income splitting advantages. The primary exception is a Qualified Disability Trust (QDT), which continues to be taxed at graduated rates (Income Tax Act, s. 122(1.1)).
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