Death & Taxes Part 1
Scotia Wealth Management Senior Wealth Advisor, Dave Lee, offers Total Wealth Planning in White Rock. To book an appointment, call 604.535.4743 or email dave.lee@scotiawealth.com.
While we don’t have an inheritance or “death” tax in Canada, we do have a “probate fee” of approximately 1.4 per cent, depending on the value of the estate, explains Dave Lee, Senior Wealth Advisor with Scotia Wealth Management in White Rock.
In addition, when someone dies, their executor will need to file tax returns for the estate until it is settled, which can sometimes take many years. From the Canada Revenue Agency’s perspective, income tax is assessed as if everything was sold on the deceased person’s last day.
So, while investments held in a Tax-Free Savings Account are not taxed, capital gains from non-registered accounts and from investment or vacation properties are taxed even if they are not sold.
The entire value of registered accounts such as RRSPs and RRIFs will be added to the deceased person’s taxable income for the year in most circumstances, Dave notes. There are provisions for tax deferral when the beneficiary is a spouse or the RDSP of a financially dependent child.
What surprises many people is that this can push the estate into the top tax bracket, a potential tax rate of 53.5 per cent. This is especially meaningful for those whose tax rates are typically down in the 20% or 28.2% tax brackets during their lifetime.
A common situation involves a family vacation cabin that may have been purchased decades earlier and is now worth considerably more. Even if the cabin is passed to the next generation, capital gains tax needs to be paid, Dave explains. Unlike an investment portfolio, you can’t sell part of a cabin to cover the tax.
Solutions are available, however – which is why it’s important to sit down with your financial planner well ahead of time, so you can create a tax-efficient plan that lets you leave more to those important to you, whether loved ones, charity or a combination of the two.
“Each person is unique. The same rules apply to everyone but understanding the dynamics of different situations will suggest different tactics for tax minimization,” Dave says.
Watch for next month’s column, when we’ll look at some of those different strategies.
Dave Lee CIM, CFP, FCSI is a Senior Wealth Advisor with Scotia Wealth Management in White Rock. He can be reached at dave.lee@scotiawealth.com or
Enjoying these articles? Visit www.dave-lee.ca/publications to read more.