Deemed disposition tax

deemed disposition taxes Nov 08, 2018

Canada is generally viewed as a country with no estate tax.  While that's true, what many people don't realize is that a "Deemed Disposition Tax," which is similar to an estate tax, applies when you die.

Taxation Issues
Deemed Disposition Tax is so-named because your investments are deemed to be sold at death. Any capital gains triggered by their sale are included in a final income tax return filed in the year of death. A final tax return also includes the value of any retirement accounts and income received from stocks, bonds, real estate investments and even in some cases the life insurance proceeds in the year of death. With Canadian federal income tax rates of up to 29%, this final taxation can be substantial. Provincial taxes and probate fees also apply.

Unless you take steps to reduce these costs, there will be less money left in your estate for your beneficiaries. Follow these helpful tips and you’ll keep the Canada Revenue Agency (CRA) from being your biggest and happiest beneficiary:

  • Leave capital property that has gone up a lot in value to your spouse.
  • Name your spouse as beneficiary of your RRSPs and RRIFs.
  • Leave your children or grandchildren cash or property that has not gone up a lot in value.
  • Use the principal residence exemption to leave your vacation property to your children without triggering a capital gain.
  • Give away capital property while you’re still alive if you have a capital loss to offset any capital gain.
  • Donate money to charity in your Will.
  • Make sure your Will gives your Executor power to use your unused RRSP contributions to make a contribution to your spouse’s RRSP.
  • Give your Executor enough information to make use of any unused capital losses when you die.

It is a good idea to structure your estate in a way that reduces any taxes owed. If you feel your Will needs to be updated, please give my office at call at 780-458-8228 to book an appointment and discuss options.

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