What is a ‘specified Investment flow-through tax – sift’
Specified Investment flow-through tax, also known as the sift tax implemented by the government of Canada on the distribution of a special type of canadian income trust. Sift trusts has been a common business structure in Canada which gave preferential tax benefits until 2006. They are actively managed and often used by businesses that essentially operate like corporations.
In October 2006, the canadian government decided that tax concessions to sift trusts was not appropriate, this means that the government collects as much taxes as he wanted, and implemented a new tax under the Tax fairness plan, which is made impermeable taxation similar to corporate taxation. Depending on the person involved in the sift, can be classified as either sift trust or SIFT partnership for the tax year.
The penetration of ‘specified Investment flow-through tax – sift’
Sift trusts structure has changed over the years as a result of new tax legislation. Before the introduction of the new tax, income trusts make up approximately 10 percent of companies listed on the Toronto stock exchange, with a large number of individuals, energy companies. As a result of changes in tax laws, many sift trusts have converted to corporate structures. Tax entered into force for existing income trusts on January 1, 2011.
There are limits to how much deduction sift trust can claim. According to the definition of the constraints and sift trust is usually unable to credit portfolio revenues are paid to the beneficiary.
Beneficiaries of a sift trust are deemed to have been entitled to the dividends because he has the right to an increased dividend credit non-deductible distribution amounts are considered to be dividends from a taxable canadian Corporation. Tax rates taxable sift trust distributions, subject to a net corporate income tax rates.
An example of a sift trust
According to the Government of Canada, in order for the trust to be defined as a sift trust, it should not be the investment of the trust estate or the child the basis of trust and to meet the following three categories:
- The trust of the owner must be a resident of Canada or partnerships in Canada
- Investment in the trust should be listed and not traded on a stock exchange or other public market
- The trust must contain one or more non-real estate